CandleFocus Glossary Editor
Collusion is an illegal act that occurs when two or more entities or individual parties cooperate and collaborate in order to gain an unfair advantage in a market or in pricing. Collusion is commonly seen in industries such as finance and retail, but it can happen in any sector with multiple competing firms. Two or more entities or individuals working together with the intent of manipulating the market or prices to their benefit is strictly prohibited, and should not be confused with healthy competition.
The most common type of illegal collusion is price-fixing, which is when firms agree to fix prices of products or services at an artificially high or low rate, thus effectively creating a monopoly. Another key form of collusion is the sharing of insider information, which refers to private, privileged, and/or confidential information not available to the public or competitors. Businesses involved in insider trading are participating in unethical and criminal behavior, rendering them liable to stiff fines, prison sentences, and other punishments.
Advertising is another area that can be affected by collusion. When firms agree to synchronize their advertising, the competition that keeps prices down and encourages innovation can be reduced. As the adage goes, two is company, and three is a crowd; when too many firms are competing against each other, the result is deflation of prices and innovation, which is detrimental to both the firms and consumers.
In order to regulate and deter collusion, various antitrust laws and whistleblower protections can be put in place. Antitrust laws are enforceable contracts that prohibit businesses of any size from engaging in unfair competition and anti-competitive practices such as price-fixing. Whistleblower laws offer protections to individuals who report suspicious or illegal activities, such as collusion or price-fixing, in the workplace.
Ultimately, collusion is illegal; however, if left unchecked and unregulated, it can erode fair competition and undermine principles of free markets and economics. Thus, it is important that both antitrust and whistleblower laws remain in place in order to ensure that firms are not engaging in such activities and that individuals have the proper protections when they report crimes.
The most common type of illegal collusion is price-fixing, which is when firms agree to fix prices of products or services at an artificially high or low rate, thus effectively creating a monopoly. Another key form of collusion is the sharing of insider information, which refers to private, privileged, and/or confidential information not available to the public or competitors. Businesses involved in insider trading are participating in unethical and criminal behavior, rendering them liable to stiff fines, prison sentences, and other punishments.
Advertising is another area that can be affected by collusion. When firms agree to synchronize their advertising, the competition that keeps prices down and encourages innovation can be reduced. As the adage goes, two is company, and three is a crowd; when too many firms are competing against each other, the result is deflation of prices and innovation, which is detrimental to both the firms and consumers.
In order to regulate and deter collusion, various antitrust laws and whistleblower protections can be put in place. Antitrust laws are enforceable contracts that prohibit businesses of any size from engaging in unfair competition and anti-competitive practices such as price-fixing. Whistleblower laws offer protections to individuals who report suspicious or illegal activities, such as collusion or price-fixing, in the workplace.
Ultimately, collusion is illegal; however, if left unchecked and unregulated, it can erode fair competition and undermine principles of free markets and economics. Thus, it is important that both antitrust and whistleblower laws remain in place in order to ensure that firms are not engaging in such activities and that individuals have the proper protections when they report crimes.