Is collusion good or bad?

Collusion is a form of anti-competitive behavior. It is an agreement between two rival companies to work together to manage the production of products and to fix prices of commodities by sharing confidential information with one another to bargain profits. Collusion is defined as an agreement to participate in illegal behaviors to make the market run in their own methods. These are typically controlled by companies which run the cartels to stop the competition in market and who has more shares in the market. For example, there are three firms which are making the same product and one of the companies collude with the second company and make their prices substantially low as to not allow the third firm to make profits. They lower the prices of products that the third firm will not have any money left for the profit as they are selling their products at the prices when there is no profit left for the third firm by giving orders to the same supplier in bulk so that they have low purchasing costs and get more discount. The price at which the two companies are selling products is lesser than the purchasing price of the third firm. In this way, they make the third firm not even close to compete with those two firms and resulting him to get out of the business completely.

Collusion can be classified in three forms namely horizontal collusion, vertical collusion and tacit collusions. There is also a form of collusion which is explicit collusion which means deliberate i.e. they wanted to collude in order to make the market grow and run by their own choice. Horizontal collusion is an agreement between two companies which are having the same production process and want the products to be cheaper or costlier so that the market becomes a monopoly market for them. Vertical collusion is an agreement between two companies which run in different levels of supply but make the same product like an agreement between a supplier and a wholesaler, a wholesaler and a retailer and a licenser with a licensee. A supplier can make an agreement with a same wholesaler for all the products that they purchase thus, giving chance to a single wholesaler to earn the profit and also get some discounts on the products every time the supplier order for a new stock. Tacit collusion is something which is not deliberate and is kept as a gentleman’s promise to someone to compete for something good. For example, there are two airlines companies which waste their millions of money in the advertisements to make their business grow. If the two airplane companies make an agreement and collude with each other they can save a lot of money which they spent in advertisements and use this money to make their business more earnable is the demand is less in recession.

Collusion is said to be an oligopoly and they try to run the business without the intervention of anyone and thus creating fuss in the market for the products if the business is competitive and no more demand for the products occur in the market and thus, they start working in total interdependence with one another. If the companies are manufacturing the same products, then the oligopoly is said to be pure oligopoly and the companies manufacturing different products are said to be running differentiated oligopoly. Oligopoly is a term used for market structure and collusion is a part of this market structure with the main aim of the manufacturers to run the market and save their business from getting competitive with many firms. Sometimes, price fixing can be bad as it affects the population who are buying the products irrespective of the knowing the fact that the business owners are fighting with each other in relation to price causing inflation. In past years, there have been fines imposed on various companies by CMA for fixing the prices and running the markets in their own competitive way. A company named GSK was fined as they have to pay to some companies for delay, resulting in the selling of a generic product which they were manufacturing. You may also read for more details.

There are some factors which lead to collusion, for example if the fine is less as compared to the profits that the companies might be earning by colluding different parties and if different parties collude to save the costumer and increase production then the collusion process is beneficial. There were six manufacturing companies which colluded so that they make the better quality of the mobile phone chargers which might benefit the customer in the longer term. Although the practice of collusion is illegal and is done to get the unfair market advantage, collusion is allowed sometimes by authorities to make the competition between companies. Now, it is the people who are running new businesses which decide whether they would want collusion or competition as a way to decide the product price and run the market as keeping information in secret is a way of deceiving, misleading or defrauding people which is done by collusion.

Kindly add more of your suggestions in the response section of what you think about collusion being a way of doing something good or something bad.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store