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Simple English definitions for legal terms
collusion
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A quick definition of collusion:
Collusion is when two or more people secretly agree to cheat or do something illegal to harm someone else. In antitrust law, collusion happens when competitors at the same level agree to control prices or limit supply. This can happen by sharing information or dividing the market. Sometimes, companies in a concentrated market can create a monopoly by setting prices at a higher level than they should be. This is called tacit collusion and is not always illegal.
A more thorough explanation:
Collusion is a secret agreement between two or more parties to cheat or deceive a third-party or to achieve an illegal purpose.
In antitrust law, collusion refers to the illegal agreement between competitors to control or fix prices, limit supply, share insider information, or divide the market. There are two types of collusion:
- Horizontal collusion: This occurs when competitors at the same market level agree to fix or control the prices they will charge for their respective goods or services. For example, two companies may agree to charge the same price for their products, even though they would normally compete on price.
- Tacit collusion: This is the process by which firms in a concentrated market create monopoly power by setting their prices at a profit-maximizing, supra-competitive level after recognizing their shared economic interests and interdependence with respect to price and output decisions. This type of collusion is not in itself unlawful, but it can lead to antitrust violations.
For example, two gas stations in the same town might agree to charge the same price for gasoline, even though they would normally compete on price. This is an example of horizontal collusion. Alternatively, two airlines might agree to limit the number of flights they offer on a particular route, which would allow them to charge higher prices. This is an example of tacit collusion.