Collusion is defined as an agreement between two or more people to defraud or deceive someone. In economics, collusion takes place when companies or individuals work together to fix prices, rig bids or otherwise create a monopoly. Cartels are the most common type of collusion, but the term can also refer to price fixing among competitors that isn’t necessarily illegal.
There are several reasons why companies might choose to collude:
To increase profits: By agreeing to charge the same high price for their product or service, companies can make more money than if they were competing against each other.
To eliminate competition: If one company agrees not to compete with another company in a certain market, it can essentially create a monopoly and eliminate any competition.
To reduce costs: By agreeing to work together, companies can pool their resources and reduce their overall costs. For example, two companies might agree to share the same supplier.
Collusion is often illegal because it can lead to higher prices for consumers, reduced choices, and a decline in the overall competition. However, not all collusion is illegal – sometimes companies engage in legal collusions, such as when they agree to share patent rights or cooperate on research and development projects.