Collusion and Cartels
Collusion is a practice where firms coordinate their actions to limit competition, often by forming a cartel. Through these agreements, firms collectively behave like a monopoly. Cartels can be managed by governments, as is the case with OPEC, or they can be formed among private companies. Because collusion to maintain high prices is illegal in many countries and unpopular with consumers, these agreements are typically informal and kept secret, making them challenging for authorities to detect and prove. [2] However, sustaining a cartel is inherently difficult, as individual members often have a strong incentive to defect from the agreed-upon high prices to capture a larger market share, which can ultimately lead to the cartel's collapse. [1, 2]
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