Collusion Definition, Influencing Factors, Classifications, Advantages, and Disadvantages
In the world of business, the concept of collusion has been a topic of great interest and concern. Collusion, a tacit cooperation or agreement to deceive others and achieve mutual benefits, can take many forms and is prevalent in various industries.
One of the most common forms of collusion is price collusion, which is often practiced in oligopoly markets where only a few suppliers are present. This practice aims to avoid direct competition, reduce market uncertainty, and achieve higher profits. Collusion can manifest in coordinating market supply, quality, or selling price of an item, as seen in the meat processing industry, healthcare sector, and public procurement.
In the meat processing industry, for instance, Agri Stats collects and distributes competitively sensitive data from the vast majority of U.S. pork, turkey, and chicken processors. By pairing detailed pricing reports with consulting that effectively advises processors to raise prices, this practice leads to sustained elevated profit margins and wholesale prices for meat products.
Similarly, in healthcare, systems like MultiPlan’s Data iSight centralize pricing decisions among major U.S. insurers, coordinating suppressed reimbursements to out-of-network providers. This algorithmic coordination results in higher patient costs and reduced access to care, showing tacit collusion through automated pricing tools without explicit agreements.
Tacit collusion can also occur in public procurement due to transparency in procurement databases, which can facilitate coordination among suppliers through observable auction outcomes and bidding patterns, leading to inflated prices and inefficient resource allocation.
In oligopolistic markets, tacit collusion can take the form of subtle mutual understandings between competitors, such as "gentlemen’s agreements" or informal signals to coordinate behaviour like prices or output without direct communication or contracts.
Collusion is detrimental to consumer interests as it leads to higher prices and a decrease in consumer surplus. It also creates barriers to entry for new competitors, reducing competitive pressure from new entrants. This is why collusion is anti-competitive behaviour and comes under strict government scrutiny.
It's important to note that some countries allow certain collusive practices that contribute to economic welfare, such as developing industry standards, joint research and development, and public disclosure of information. However, these practices must be transparent and in the public interest to avoid crossing the line into anti-competitive behaviour.
Collusion is illegal in many countries because it is detrimental to the public interest. Price leadership, an example of tacit collusion, where firms set prices following the market leader, is also under strict government scrutiny. The chances of collusion are higher when there are fewer companies in the market or one dominant company, making it easier for companies to coordinate their actions.
The OPEC, a well-known example of a cartel in the petroleum business, is a testament to the power of collusion when it comes to controlling prices and market supply.
In conclusion, tacit collusion exploits market interdependence, data sharing, and algorithmic tools to achieve coordinated market outcomes absent formal agreements, affecting consumer prices and market competition in sectors like agriculture, healthcare, and public contracting. As such, it is crucial for regulators to remain vigilant and proactive in enforcing antitrust laws to protect consumers and foster a competitive marketplace.
In the realm of finance and business, tacit collusion can significantly impact various industries, such as agriculture and healthcare, by influencing prices and reducing competition. For example, in the meat processing industry,collusion might involve data collection and distribution to guide pricing decisions, leading to increased prices for consumers. Similarly, in the healthcare sector, automated pricing tools may result in coordinated suppressed reimbursements to out-of-network providers, consequently raising costs for patients.
