collusion

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collusion

the deliberate suppression of competition between themselves by a group of rival suppliers. Collusion may be confined to a single area of business activity for example prices, or cover a wider range of limitations including coordinated marketing, production and capacity adjustments. Collusion may be practised through formalized arrangements specifying obligations (either in writing or orally) and institutional mechanisms for coordinating behaviour, as in a CARTEL or ANTICOMPETITIVE AGREEMENT/ RESTRICTIVE TRADE AGREEMENT, or operated by more informal means through, for example, an INFORMATION AGREEMENT or CONCERTED PRACTICE.

The purpose of collusion may be to monopolize jointly the supply of a product in order to extract MONOPOLY profits, or it may be a defensive response to poor trading conditions, seeking to prevent prices from dropping to uneconomic levels. Because, however, of its generally adverse effects on market efficiency (cushioning inefficient, high-cost suppliers), and because it deprives buyers of the benefits of competition (particularly lower prices), collusion is usually prohibited outright, by COMPETITION POLICY, as in the UK, under the COMPETITION ACT 1998.

collusion

a form of INTERFIRM CONDUCT pattern in which firms arrive at an agreement or ‘understanding’ covering their market actions. Successful collusion requires the acceptance of a common objective for all firms (for example, JOINT-PROFIT MAXIMIZATION) and the suppression of behaviour inconsistent with the achievement of this goal (for example, price competition). Collusion may be either overt or tacit. Overt collusion usually takes the form of either an express agreement in writing or an express oral agreement arrived at through direct consultation between the firms concerned. Alternatively, collusion may take the form of an ‘unspoken understanding’ arrived at through firms’ repeated experiences with each other's behaviour over time.

The purpose of collusion may be jointly to monopolize the supply of a product in order to extract MONOPOLY profits, or it may be a ‘defensive’ response to poor trading conditions, seeking to prevent prices from dropping to uneconomic levels. Because, however, of its generally adverse effects on market efficiency (cushioning inefficient, high-cost suppliers) and because it deprives buyers of the benefits of competition (particularly lower prices), collusion is either prohibited outright by COMPETITION POLICY or permitted to continue only in exceptional circumstances.

In the UK, under the COMPETITION ACT 1998, collusion in the form of an ANTICOMPETITIVE AGREEMENT/RESTRICTIVE TRADE AGREEMENT is prohibited outright. Previously, under the RESTRICTIVE TRADE PRACTICES ACT, such agreements were allowed to continue, providing ‘net economic benefit’ could be established. See CARTEL, RESTRICTIVE TRADE AGREEMENT, ANTICOMPETITIVE AGREEMENT, OLIGOPOLY, DUOPOLY, INFORMATION AGREEMENT, RESTRICTIVE PRACTICES COURT.

References in periodicals archive ?
First, many collusive agreements are likely to be tacit and even if there is explicit communication between the parties, it is often difficult to establish a paper trail to prove collusion.
Equilibrium strategies for the model (provided suitable assumptions are made) imply a small price variance in a collusive agreement.
We revisit Friedman's (1971) work under optimal punishment instead of trigger strategies to characterize the effect of detection lags in collusive agreements in an n-firm oligopoly.
The Sherman Antitrust Act ("Sherman Act") prevents businesses from creating collusive agreements that unreasonably restrain trade.
Abstract: In this paper we analyze how the technology used by downstream firms can influence input and output market prices resulting from collusive agreements between some downstream and upstream firms.
Moreover, any collusive agreement triggered by the use of AD law cannot be exempt of antitrust action and the Noer-Pennington doctrine does not allow for such exemption, but considers any private attempt to affect prices or quantities illegal.
In the second step, the stockholders of each firm decide whether to adhere to the collusive agreement or to cheat.
However, individual firms could have an incentive to cheat on the collusive agreement, if the chance of being detected and/or punished is sufficiently small.
This will impede the creation or enforcement of any collusive agreement.
In effect, the class group may be viewed as entering a collusive agreement in which each student studies and takes the quiz.
The antitrust charges include allegations that Digimarc entered into a collusive agreement with Macrovision to take certain actions designed to restrain Verance from competing with Macrovision and VWM in markets for copy protection and digital watermarking technologies and products.
And second, by reducing the number of customers to whom the price cut is offered, the probability of detection by other parties to the collusive agreement is lowered.