Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Collusion

What it is:

Collusion, also known as price rigging or price fixing,  occurs when several individuals and/or businesses agree to set the price for something. 

How it works (Example):

For example, let’s assume that there are four major cable providers in the U.S. The four companies meet secretly and agree not to compete with one another for customers in certain geographic areas of the country. To accomplish this, they agree on which of the four providers will "get" each territory by offering the best price or service in that territory. The other three firms agree to not offer a lower price in that territory. In return, each of the three other firms get their own territory with the same agreement. By doing this, the four providers ensure that no other competitors will enter the markets, thereby preserving their profits and territories as a whole.

In the stock market, traders with inside information might collude on trades in order to benefit from the inside information. 

Why it Matters:

Collusion is illegal because it interferes with the natural market forces of supply and demand and harms consumers by inhibiting competition.