Collusion

Understanding Collusion: Definition, Examples, and Prevention

Key takeaways
* Collusion is a secret agreement between competitors to manipulate market conditions for mutual benefit; it is typically illegal.
* Common forms include price fixing, coordinated marketing, and sharing nonpublic information.
* Antitrust laws, the risk of defection, and whistleblower protections deter collusion.
* High-profile enforcement (for example, the Apple e-book case) shows legal and financial consequences for collusive conduct.

What is collusion?

Collusion occurs when two or more competitors secretly coordinate actions that distort normal market competition to gain an unfair advantage. Typical objectives include fixing prices, dividing markets, suppressing output, or using insider information to trade ahead of the public. Because these practices harm consumers and competitors, they are generally prohibited under U.S. antitrust law.

Common forms of collusion

• Price fixing — Competitors agree to set prices (or price ranges), which can keep prices artificially high or low and raise barriers for new entrants. This is especially likely in oligopolies or concentrated markets.
• Coordinated marketing or advertising — Firms synchronize messages or campaigns to limit consumer knowledge or preserve a competitive posture that benefits the group.
• Sharing insider or preliminary information — In financial markets, exchanging nonpublic information lets participants trade ahead of the market, creating unfair advantages.

Why collusion is deterred

• Antitrust enforcement — Laws and enforcement agencies (e.g., the Department of Justice and the Federal Trade Commission) prohibit agreements that unreasonably restrain trade and can impose fines, damages, and injunctions.
• Risk of defection — Members of a collusive agreement may secretly undercut the group to increase their own profits, undermining the stability of the scheme.
• Whistleblowers — Individuals who report collusion can trigger investigations; many jurisdictions offer protections and incentives to reduce retaliation and encourage reporting.

Case study: Apple e-books

In litigation stemming from coordinated pricing in the e-book market, a U.S. court upheld a 2013 finding against Apple in 2015 that the company conspired with several major publishers to influence e-book prices. The matter resulted in a settlement (approximately $450 million) resolving claims by consumers and highlighting the legal and financial risks of collusive conduct.

Related concepts

• Duopoly — A market dominated by two firms; sometimes defined more broadly as two firms controlling a large majority of market share (e.g., over 70%). Duopolies are environments where collusion is easier to sustain.
• Antitrust statutes — Key U.S. laws include the Sherman Act (1890), the Federal Trade Commission Act, and the Clayton Act (1914, with later amendments). These statutes limit agreements that reduce competition and protect consumers.
• Whistleblower protections — Federal and state laws protect employees from retaliation for reporting illegal conduct. For example, the Whistleblower Protection Act shields government employees who disclose wrongdoing.

What to do if you suspect collusion

• Document what you observed (communications, meeting dates, pricing changes).
• Avoid participating in or facilitating the conduct.
• Consult legal counsel for advice on reporting and protections.
• Report suspected collusion to appropriate authorities (e.g., the FTC or DOJ Antitrust Division) or use whistleblower channels where available.

Conclusion

Collusion undermines market integrity, harms consumers, and exposes participants to severe legal and financial consequences. Understanding the common forms of collusion, the legal framework that deters it, and the protections available to whistleblowers helps individuals and businesses identify and respond to anticompetitive behavior.

Further reading
* Federal Trade Commission — Antitrust resources
U.S. Department of Justice — Antitrust Division
Cornell Law School Legal Information Institute — Antitrust and Whistleblower law summaries