What is collusion?
Collusion is a secret agreement among competitors to manipulate market conditions—most often prices, output, information, or advertising—to secure mutual advantage. Because it reduces genuine competition and harms buyers, collusion is illegal in the United States and many other jurisdictions.
Key concepts and definitions
– Price fixing: Competitors agree to set prices, minimum markups, or discounts instead of letting the market determine them.
– Oligopoly: A market dominated by a few firms; these markets give collusion more opportunity because each firm’s choices strongly affect the others.
– Duopoly: A special case of oligopoly where two firms control a large share of the market (often used when two firms hold most of the sales).
– Defection: When one member of a collusive agreement breaks the pact—usually by lowering price or increasing output—to capture greater market share; defection threatens the stability of collusion.
– Insider-information sharing (financial collusion): Firms or traders exchange nonpublic information to trade ahead of the market or otherwise benefit unfairly.
– Whistleblower protections: Laws that shield employees or other insiders who report illegal conduct from retaliation.
Common forms of collusion
– Explicit price-fixing agreements among competitors.
– Parallel conduct coordinated through secret meetings, private communications, or shared strategies (advertising timing, restricting product information).
– Exchange of confidential or preliminary data that lets participants trade or act before the public knows (insider-type collusion in finance).
Why collusion happens (and why it’s risky)
– Incentive: Firms can raise profits by setting higher collective prices or by coordinating to exclude rivals.
– Instability: The same incentive creates temptation to defect and undercut partners, which can collapse the arrangement.
– Enforcement risk: Antitrust statutes, regulatory oversight, and criminal or civil penalties make collusion costly if detected.
Short checklist — signs of possible collusion
– Similar or identical pricing across competitors without transparent rationale.
– Sudden, simultaneous price changes across producers or sellers.
– Secretive meetings or private communications among competitors.
– Coordinated marketing or simultaneous product withdrawals that serve to reduce consumer options.
– Trading behavior that suggests parties acted on nonpublic, shared information.
If you suspect collusion (step-by-step)
1. Document what you see. Record dates, prices, communications, contract terms, and names.
2. Preserve evidence—screenshots, emails, meeting summaries—but avoid illicitly obtaining private information.
3. Compare behavior to industry norms and public announcements to discern whether changes are coordinated.
4. Consult counsel experienced in competition or securities law for guidance on next steps.
5. Consider reporting to the appropriate authority (Federal Trade Commission or Department of Justice Antitrust Division for most U.S. private-sector cases; SEC for securities matters). If you are an employee, review whistleblower protections before reporting.
Worked numeric example (duopoly and the temptation to defect)
Assume two firms, A and B, choose prices each period. If both maintain a high collusive price, each earns $100 in profit. If one defects by undercutting price, the defector earns $150 while the compliant firm’s profit falls to $50. If both undercut (compete), each earns $80.
Payoff table:
– Both cooperate (collude): A = $100, B = $100
– A defects, B cooperates: A = $150, B = $50
– A cooperates, B defects: A = $50, B = $150
– Both defect: A = $80, B = $80
Interpretation: While mutual cooperation yields a higher joint profit ($200 total) than mutual defection ($160 total), each firm has an incentive to defect because $150 > $100. That incentive makes collusion fragile without strong enforcement mechanisms or repeated interaction that punishes defection.
Key deterrents to collusion
– Antitrust enforcement: criminal and civil actions, fines, and injunctions.
– Regulatory oversight in heavily supervised industries (e.g., utilities, securities).
– Market entry and competition that lower the ability to sustain elevated prices.
– Internal instability from defection and risk of whistleblowing.
– Reputation and civil liability exposure.
Illustrative case: e‑book pricing and Apple
U.S. courts found that Apple coordinated with several large book publishers to change how e‑books were priced in order to raise retail prices and limit Amazon’s discounting. The litigation culminated in a judgment against Apple and a multiyear settlement that included payments to consumers. The case is a concrete example of how coordinated pricing strategies among platform operators and suppliers can attract antitrust claims.
Relevant U.S. antitrust and whistleblower law notes
– Major federal antitrust statutes include: the Sherman Act (1890), the Federal Trade Commission Act (1914), and the Clayton Act (1914, amended later). These laws prohibit price fixing, market allocation, and other anticompetitive agreements.
– Whistleblower protections exist at federal and state levels. The federal Whistleblower Protection Act protects government employees; other statutes protect private-sector whistleblowers in specific contexts (e.g., securities fraud reporting to the SEC).
Selected reputable sources
– Federal Trade Commission — The Antitrust Laws: https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws
– U.S. Department of Justice — Antitrust Division: https://www.justice.gov/atr
– Cornell Law School, Legal Information Institute — Whistleblower Law: https://www.law.cornell.edu/wex/whistleblower_laws
– Investopedia — Collusion (overview article): https://www.investopedia.com/terms/c/collusion.asp
Final thoughts
Collusion undermines competition and harms consumers and markets. Recognizing the signs, documenting suspicious behavior, and engaging appropriate legal or regulatory channels are practical
are practical steps a market participant or consumer can take when they suspect collusion.
Immediate checklist (what to do first)
– Stop any participation. Do not join or continue communications or agreements that affect pricing, output, or market allocation; participation can create legal exposure.
– Preserve evidence. Save emails, text messages, meeting notes, screenshots, trade confirmations, timestamps, and any relevant contracts. Make secure, read-only copies.
– Record facts, not conclusions. Create a dated log: who, what, when, where, and how. Avoid speculative language—describe observable actions and communications.
– Seek confidential legal advice. An attorney experienced in antitrust or securities law can advise on whistleblower protections and risks before you report.
How to document suspicious behavior (practical items to collect)
1. Communications: sender, recipient, date/time, platform (email, phone, chat), and content (copy or screenshot).
2. Pricing/timing patterns: exact timestamps of price changes or trade prints; note identical or near-identical moves across competitors.
3. Contractual/meeting evidence: agendas, minutes, travel or meeting logs showing competitor gatherings.
4. Transaction data: order book snapshots, trade history, volumes, and executed prices.
5. Witnesses: names of participants or bystanders and short statements if willing to provide them.
Step-by-step reporting process (general)
1. Review with counsel to confirm whether the conduct likely violates antitrust or securities laws and to plan safe reporting.
2. If antitrust (price fixing, market allocation, bid rigging), report to the U.S. Department of Justice Antitrust Division and/or the Federal Trade Commission. Provide a clear chronology and copies of preserved evidence.
3. If securities-related (collusion affecting securities prices, market manipulation), report to the Securities and Exchange Commission or FINRA. Use the SEC Whistleblower Program if you believe the conduct involves securities law violations.
4. Consider state authorities: state attorneys general often handle local antitrust issues.
5. Keep copies of what you submit and follow up if you don’t receive a confirmation.
Worked numeric example (simple illustration of consumer harm)
Assumptions:
– Two retailers sell the same good.
– Competitive price = $2.00 per unit.
– Collusive price = $2.50 per unit.
– Quantity sold under collusion declines 10% compared with competition.
Under competition:
– Price = $2.00, Quantity = 1,000 units → consumer expenditure = $2,000.
Under collusion (assumed):
– Price = $2.50, Quantity = 900 units → consumer expenditure = $2,250.
Immediate measurable consumer harm (extra amount paid by consumers on units sold):
– Extra paid = $2,250 − $1,800 on comparable 900-unit basis, but to compare apples-to-apples calculate additional cost on units sold:
– Extra per unit = $0.50.
– Extra total = $0.50 × 900 = $450.
Notes on the example:
– This is a simplified arithmetic illustration. True welfare effects include changes in consumer surplus, producer profits, and quantities across the whole market and require demand elasticity estimates. The example assumes uniform demand sensitivity and ignores long-term adjustments.
Red flags specifically for traders and market observers
– Simultaneous or near-simultaneous identical price or quote changes across multiple firms without observable reason.
– Repeated clustering of trades at similar sizes and times, especially after private communications.
– Unusual cancellations or coordinated order routing patterns.
– Evidence of secret meetings, shared spreadsheets of pricing strategy, or non-public communications among competitors.
– Repeated wash trades or trades that benefit several parties without clear market rationale (could indicate collusion or other manipulation).
Legal and practical cautions
– Do not attempt to gather evidence by creating false documents, impersonating others, or engaging in illegal recordings—these may create criminal or civil exposure.
– A reported suspicion does not mean guilt; regulators investigate, weigh evidence, and decide whether to bring charges.
– Whistleblower protections vary by program. Consult counsel to understand confidentiality, immunity, and potential monetary awards (e.g., SEC whistleblower awards are possible under defined conditions).
Selected reputable resources
– Federal Trade Commission — The Antitrust Laws: https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws
– U.S. Department of Justice — Antitrust Division: https://www.justice.gov/atr
– U.S. Securities and Exchange Commission — Whistleblower Program: https://www.sec.gov/whistleblower
– Cornell Law School, Legal Information Institute — Whistleblower Law: https://www.law.cornell.edu/wex/whistleblower_laws
– Investopedia — Collusion (overview article): https://www.investopedia.com/terms/c/collusion.asp
Educational disclaimer
This information is educational and illustrative only. It is not legal or investment advice, nor a recommendation to buy or sell any security. If you suspect illegal conduct, consult qualified counsel or a regulator before taking action.