Definition of "Collusion"

The term collusion may make you think about colluding from the start, and you wouldn’t be far from the truth. The definition of collusion is a secret, non-competitive, and, at times, illegal agreement between two or more rivals that aim to destabilize the market’s balance. 

Collusion can be done by people, companies, or other entities that generally go against each other. However, instead of doing what they normally should, they collude in order to gain an unfair advantage in the market. The reason for collusion is to influence the supply of a good or service within the market or set a common price that will help their partners’ profits but unfairly impact the competitors. Collusion can be commonly encountered in duopolies.

Types of Collusion

As mentioned before, collusion occurs when more than one rival entity agrees on a set of norms to obtain an unfair advantage collectively. Collusion can take more than one form and can happen in different types of markets. 

The most common type of collusion is price-fixing. While price-fixing involves a small number of companies that offer the same product, if they form an agreement on a specific price level, they can drive out competitors if they all lower the price at the same time. Aside from this, price-fixing can also make it incredibly difficult for any new company to enter the market.

If companies synchronize their advertising campaigns, it can also be collusion. By synchronizing their advertising campaigns, companies can limit the information given to the consumer or clients about their products or services.

The use of insider information is another form of collusion that can be encountered in the financial industry. If groups of colluding companies share private or preliminary information, they can gain several advantages in advance while the rest of the market has to wait. When the information is made public, the other companies are barely starting to plan their next move, while the colluding group has all their homework done ready to be graded. This type of collusion makes it easier for colluding partners to enter or exit trades when it comes to the stock market, and we can all understand how dangerous it can be.

What stops Collusion?

As the United States considers collusion to be an illegal practice, antitrust laws are set in place to regulate any misconduct. This is just one method of preventing collusion and other illicit practices. Some industries have their own types of strict supervision, making it even more difficult to partake in collusion. The most “amusing” deterrent to collusion is defection. This can happen if a company that initially agrees to participate in collusion decides to back out and undercut the profits of the other partners. That company can also become a whistleblower and call the appropriate authorities with a full report on the collusion that took place or is still taking place.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Real Estate Terms

Calculator having various financial functions including present value, purchase price, property appreciation, lease costs, loan and mortgage amortization. ...

Internal rate of return ignoring taxes associated with the capital invested in property. Internal rate of return considers the amount and timing of the annual cash flow from the property ...

Real estate not subject to property tax such as that owned by nonprofit entities including charitable, governmental, religious institutions. ...

A lien that makes property security for the repayment of debt. Mortgages can finance the acquisition of real estate such as a home. A mortgage has certain benefits compared to other debt ...

Any property, tangible or otherwise, except real estate. For example, furniture or automobiles. ...

Details of a contract of sale including a financial statement, legal description, type of deed, place, date and time of closing of title. ...

Expenditure to make a specific security or real estate transaction. Real estate transaction costs include survey costs, mortgage points and origination fees, recording fees, state transfer ...

Most generally, the meaning of a blueprint defines a plan or a guide you follow in performing some future activity.  Blueprint in architecture The compilation of a blueprint in ...

Situation in which very few prospective buyers of real estate are rejected by lenders. This may be due to ample money supply, lower interest rates, and/or relaxed credit standards. See also ...

Popular Real Estate Questions