Collusion - Explained
What is Collusion?
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Table of ContentsWhat is Collusion?How does Collusion Happen? Academic Research on Collusion
What is Collusion?
This is a concerted practice between two or more competitors to carry out various actions that will result in the limiting of competition and a rise in profits. Such activities include setting sale, purchase and other market conditions, interfering with the results of bids among others.
In economics, collusion is seen as the agreement made between companies belonging to the same industry with a purpose of coordinating actions which allow them to grow stronger and challenge the growth possibilities of the rest. For example, two companies may come to an understanding that each one would control a section of the market through means such as monopolistic practices to prevent market access by new players.
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How does Collusion Happen?
Collusion agreements are either explicit or tacit. In the case of an explicit, the firms have an explicit agreement and do communicate with each other. In the case of tacit, the firms do not have an agreement and don't interact with each other, but they coordinate their actions and recognize their strategic interdependence. This means that they know the effects on the rest of the companies that emanate from their actions and they act with full knowledge to limit the competition.
According to most competition Authorities, collusion is one of the most significant violations of the Competition Law. As a result, plenty of resources are usually allocated by these authorities in the investigation and punishment of such abuses. Nevertheless, proving the existence of collusion is very difficult. People who participate in collusion know its illegality, and they put in place serious measures to hide any evidence. Usually, these participants meet secretly and destroy any incriminating evidence.
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