The Basics
- Simple definition: An agreement between firms to coordinate their actions rather than compete.
- Core idea: Firms act together to raise prices and restrict output, mimicking monopoly behavior.
- Think of it as: Competitors secretly agreeing not to undercut each other.
What It Actually Means
Collusion can be explicit (firms formally agree on prices or market shares) or tacit (firms indirectly coordinate without a formal agreement). Both are typically illegal under competition laws. Collusion is most common in oligopolistic markets where few firms exist, making coordination easier. The incentive is clear: together they can earn monopoly profits. The challenge is preventing cheating – each firm has an incentive to secretly cut prices and steal market share.
Example
Pakistan’s cement industry has faced multiple investigations by the Competition Commission of Pakistan for suspected collusion. When all major producers announce similar price increases at the same time, despite falling input costs, it raises red flags.
Why It Matters (2026)
Collusion harms consumers through higher prices and reduced choice. Competition authorities worldwide use economic analysis to detect suspicious pricing patterns and prosecute offenders.
Don’t Confuse With
Oligopoly – oligopoly is the market structure; collusion is one possible behavior within it.
See also
Oligopoly • Cartel • Game Theory • Price Fixing • Competition Policy
Read more about this with MASEconomics:
Types of Collusion in Oligopoly: Tacit, Formal, and Illegal Practices Explained