🤝 Collusion: When Friends Become Foes in the Market
🍬 The Sweet Trap: Price Fixing in the Candy Aisle
Imagine the two biggest chocolate companies in your country, SweetTreat and CocoaYum. Instead of competing to see who can make the cheaper chocolate bar, their bosses meet in a secret room. They agree that both will sell a chocolate bar for $2.50. You, the customer, can't find a cheaper bar anywhere else. This is price fixing. You end up paying more, and the companies share the extra profit. It's like if all the lemonade stands on your street agreed to sell a cup for $5.00—you'd have no choice but to pay up or go thirsty.
🏭 Dividing the Pie: Market Sharing and Output Limits
Sometimes, friends don't fight over territory. Two big airlines might agree: "You fly only in the North, and we'll fly only in the South." This is market sharing. They don't compete on the same routes, so they don't have to lower prices to attract passengers. Another trick is to limit output. Think of a famous sneaker company and its rival. They both agree to produce only 10,000 pairs of a popular shoe, even though they could sell 100,000. By making the shoes scarce, they keep the price high and fans desperate to buy them.
🌍 Real-World Example: The LCD Price-Fixing Cartel
A famous real-world case involved companies making LCD screens (the screens in your old TVs and computer monitors). In the 2000s, major companies like LG and Sharp secretly met to fix the prices of these screens. They talked in hotel rooms and used code names. Because of this collusion, the price of TVs and laptops stayed artificially high. When caught, they had to pay billions of dollars in fines. This shows how collusion affects the price of everyday technology, from calculators to flat-screen TVs.
| Type of Collusion | How It Works | Real-Life Example |
|---|---|---|
| Price Fixing | Competitors agree on a standard price, eliminating competition. | E-book publishers fixing prices with Apple in 2010. |
| Market Sharing | Firms divide customers or territories to avoid competing. | Two delivery services agreeing one works east of the river, the other west. |
| Output Limitation | Firms agree to produce less to drive prices up. | OPEC[1] countries limiting oil production. |
| Bid Rigging | Firms secretly arrange who will win a contract. | Construction companies taking turns to win school-building bids. |
❓ Important Questions About Collusion
A: No! Companies cooperate all the time in legal ways, like creating industry safety standards or working together on a big project (a joint venture). It only becomes illegal collusion when the goal is to cheat consumers by fixing prices, limiting supply, or dividing markets. The key difference is whether the cooperation helps or hurts the customer.
A: Because it's risky and unstable! First, it's illegal, and they can face huge fines or even jail time. Second, there's the "cheater's temptation." If Firm A and Firm B agree to charge $100, Firm A might secretly charge $95 to steal all the customers. Once trust breaks, the collusion falls apart, and prices crash back down.
A: Investigators look for strange patterns, like all companies raising prices on the exact same day. They also use "leniency programs." If one member of a cartel confesses and gives evidence, they can get a lower fine. This makes the cheaters (the ones who break the collusion agreement) run to the government first, which helps break up the secret pact.