Business, Legal & Accounting Glossary
A secret agreement for an illegal purpose; conspiracy. Secret cooperation between two people in order to fool another. Collusion was often practiced by couples before no-fault divorce in order to make up a grounds for divorce (such as adultery). By fabricating a permitted reason for divorce, colluding couples hoped to trick a judge into granting their freedom from the marriage. But a spouse accused of wrongdoing who later changed his or her mind about the divorce could expose the collusion to prevent the divorce from going through.
n. where two persons (or business entities through their officers or other employees) enter into a deceitful agreement, usually secret, to defraud and/or gain an unfair advantage over a third party, competitors, consumers or those with whom they are negotiating. Collusion can include secret price or wage fixing, secret rebates, or pretending to be independent of each other when actually conspiring together for their joint ends. It can range from small-town shopkeepers or heirs to a grandma’s estate, to gigantic electronics companies or big-league baseball team owners.
Collusion is a kind of non-competitive agreement among business rivals in the same industry. Firms display collusive behaviour to cut down on competition and earn a greater proportion of profits. In other words, firms tend to desist from market fragmentation. Collusive behaviour of firms is mostly seen in an oligopolistic market structure. Collusive behaviour is also seen in stock markets. Colluding traders often share classified information on events like upcoming takeovers. Price rigging for the realization of higher profits is a result of the collusive behaviour of sellers. (Members displaying collusive behaviour are always from same industry).
An oligopolistic market structure often displays the collusive behaviour of rival economic agents (sellers). Then rival business enterprise enters into price-fixing agreements. In this way, cartels are formed.[A cartel refers to an association of countries or companies, which act collectively to control prices of a product via control of output and marketing of same]. A cartel is also referred to as a trust. Countries like the USA consider trust to be an illegal business entity. Firms engage in agreements (collusion) to augment profit by controlling competition. Antitrust regulatory bodies exist in countries. Their prime concern is the identification of cartels and breaking down of same. Cartels are against the concept of free competition. They lead to the creation of market power. Collusion in an oligopoly may be either overt or tacit. Due to the intricate nature of deals of firms in oligopolistic markets, game-theoretic analysis is employed for their study.
Organization of Petroleum Exporting Countries or OPEC is world’s biggest cartel of oil-producing nations. It consists of 12 main petroleum-producing countries. Collectively they control around 40 per cent of global oil exports. OPEC was set up in 1960. It is involved in the fixation of production quotas and crude oil prices among member nations. Member nations include countries like Algeria, Venezuela, Gabon, United Arab Emirates, Indonesia, Saudi Arabia, Iran, Iraq, Qatar, Kuwait and Libya. Since oil forms the main source of the world’s energy base, OPEC wields substantial power in the global market. Vital economic factors of nations like inflation, employment, foreign currency reserves are all affected by pricing and production quotas of OPEC.
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This glossary post was last updated: 27th April, 2020 | 2 Views.