Collusion is the cooperation between between rival companies in which both benefit, and it is illegal in the United States. For this reason, collusion is done in secret. Collusion provides opportunities to do things such as set prices or limit production and it is most commonly found in an Oligopoly market structure. However, collusion can have so much power on a market, that it can turn one that was not previously an oligopoly, into one, as collusion can significantly reduce competition. Thanks to the Clayton Antitrust Act, performing in such ways is not allowed and companies can be federally prosecuted.
An example of collusion can be seen historically in the MLB in the 80's. What occurred was owners made it so that collusion among players was against the rules. They were afraid that players would work together in order to raise their salaries. Ironically, what ended up happening was that in the years of 85-87, team owners practiced collusion and limited free agent contracts. The owners made an agreement to not sign free agents coming from other teams. In doing this, bidding wars were eliminated and the owners all saved money. However, this limited players from receiving competitive offers from other teams, which took away from the possible salary that they could have earned. In the end, this did not work out for team owners. When found guilty of collusion, they were forced to pay their free agents a total of 280 million dollars each. This is just one of many examples of the collusion that frequently happens among firms.
Overall, through researching many examples of collusion, it is bad and does not often benefit the consumer and provider. There are some cases such as in the MLB where players make quite a bit of money off of the collusion that they were forced to undergo, however this is not every case. Collusion can often kill off companies and limit the market in illegal ways. In summary, it is unlikely that collusion will benefit anyone other than the companies in most circumstances, and it should stay illegal.
https://www.sbnation.com/mlb/2018/1/18/16882650/mlb-collusion-offseason-free-agency-explainer
https://www.thoughtco.com/collusion-economics-definition-1147009
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Fortunately, there are a lot of barriers to collusion, both in terms of the laws that apply but also the nature of the economic market. Low entry barriers in oligopolies make it so that more firms enter the market, and as more firms enter the market, it is more difficult to coordinate to raise prices. It is much more likely that competition will lower prices for consumers. Second, antitrust legislation explicitly prevents collusion. Third, firms have many ways to secretly "cheat" collusive agreements, such as creating improvements in quality or adding a feature like free shipping.
ReplyDeleteSince so many of our industries are oligopolies (internet service providers, media companies, airlines, etc.), there are many different possible acts of collusion that could take place and hurt consumers. Like your example above, if all major airlines got together and set a price floor for what their cheapest ticket can be then consumers will lose out on the potential deals and money they could have saved from companies who had to lower their prices in order to compete with other companies. Collusion mainly hurts us consumers and the antitrust acts that are in place today are an important part of fighting it, but we must update these outdated laws to fit our current economic climate and adapt to the changes that technology has created.
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