What is Collusion and Are You Doing It?

Let’s say that you have a business, and there aren’t many competitors in your industry. You aren’t exactly sure of what you should charge for your goods or services, or else, you’re not sure that what you’re currently charging is in line with your competitors.

So you decide to call a few of them. “What are you charging?” you ask them, and they tell you. You speak with a few, and you adjust your pricing accordingly, to be in line with your competitors.

Wait….did you just commit a crime? You may have. You could be accused of collusion.

What is Collusion?

Collusion involves businesses in the same field or industry, working together to set prices. In doing so, they all realize an advantage by eliminating competition, if all businesses charge the same thing, they all reap about the same amount of profit, and nobody “undercuts” the other businesses.

But as far as free market competition, the public loses, and since competition is the heart of capitalism, collusion is illegal.

Not Just Price

Collusion doesn’t have to be working together to directly set a price.

Imagine a supplier of a part, and all the suppliers collectively agree that they will only manufacture a certain amount of that item or goods. Thus, there remains a limited supply, ensuring that all manufacturers can charge a good amount for what they’re making. Just the agreement to limit supply to control supply or demand, may be seen as working together with competitors to fix, set or establish, a market price.

Collusion can happen in advertising also. If the only 10 companies that made a product agreed to advertise a certain way, and to include and exclude certain information from the advertisements to conceal something about the product or service they are selling, the public now has no access to that information, the way that they would if competitors were pointing out the negatives of each other’s product.

Antitrust Laws

Collusion is a violation of antitrust laws, and numerous federal and state statutes, including the Sherman antitrust act, can come into play.

Because collusion usually requires that there be a limited amount of a seller or supplier in the market, it often ends up that larger companies get targeted by the government for collusion. But that doesn’t mean that they won’t go after you, for working with your competitors.

In fact, if all the companies in an industry work together to set (and presumably, raise) prices in an industry, and they have full control of a supply chain, they may be seen, legally, as a cartel.

Damage to Competing Businesses

Collusion can not only hurt customers, but businesses as well. In industries where there are a few, very large companies, those companies can afford to keep their prices lower. By the big companies selling the products at a lower cost, the smaller companies in that industry, which can’t afford to sell their product at that price, end up getting priced out of the market.

Call the West Palm Beach business litigation attorneys at Pike & Lustig to help you with your pricing strategies and to make sure they’re legal.

Source:

corporatefinanceinstitute.com/resources/economics/collusion/