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Collusion refers to combinations, conspiracies or agreements among sellers to raise or fix prices and to reduce output in order to increase profits.

As distinct from the term cartel, collusion does not necessarily require a formal agreement, whether public or private, between members. However, it should be noted that the economic effects of collusion and a cartel are the same and often the terms are used somewhat interchangeably.

Collusion between firms to raise or fix prices and reduce output are viewed by most authorities as the single most serious violation of competition laws. Collusive arrangements are known to have been arrived at and enforced in ways which are as varied as the human imagination itself. Cases drawn from across different countries reveal that collusion may be reached through informal gentlemen’s agreements where mutual regard, social convention and personal contacts and connections provide sufficient basis for ensuring adherence to agreed prices and related business practices by members. While collusion is generally easier when sellers are few and produce homogenous products, price fixing conspiracies have also arisen in the sale of complex products. An example is the electrical equipment industry in the United States which involved 29 different companies selling diverse technical products such as turbine generators, transformers, switch gears, insulators, controls and condensers. Similarly, through agreement on product specification details and standards, American steel producers were able to collude successfully for some time. In one bid-rigging conspiracy firms used the "phases of the moon" to take turns and determine which amongst them would submit the "low" bid to win the contracts. In yet other types of cases, collusion entailed market sharing agreements.

Collusion does not necessarily have to involve an explicit agreement or communication between firms. In oligopolistic industries, firms tend to be interdependent in their pricing and output decisions so that the actions of each firm impact on and result in a counter response by the other firm(s). In such circumstances, oligopolistic firms may take their rivals’ actions into account and coordinate their actions as if they were a cartel without an explicit or overt agreement. Such coordinated behaviour is often referred to as tacit collusion or conscious parallelism.

Source Publication:
Glossary of Industrial Organisation Economics and Competition Law, compiled by R. S. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.


Statistical Theme: Financial statistics

Created on Thursday, January 03, 2002

Last updated on Wednesday, April 10, 2013