Collusion

Collusion

Collusion occurs when two or more firms price fix and restrict their outputs to the detriment of customers welfare.

Types of collusion

Tacit collusion

This is the type of collusion that occurs through ‘unspoken’, ‘quite’, ‘hidden’ agreements between two parties. They are often implicit agreements that are extremely difficult for competition authorities to prove. Tacit collusion is illegal.

Overt collusion

Overt means open or spoken collusion between firms. They will both be aware of each other’s price and output decisions and adjust accordingly to maximise profits. This type of collusion is easier to detect and is also illegal.

[Covert Collusion add]

Quick Fire Questions – Knowledge Check

1. Define ‘Collusion’ (2 marks)

2. Identify the three major types of collusion (3 marks)

3. Explain what is meant by ‘Tacit Collusion (2 marks)

4. Explain what is meant by ‘Overt Collusion (2 marks)

5. Explain what is meant by ‘Covert Collusion (2 marks)