Collusion facts for kids

A collusion is a secret agreement between two or more people or groups. They make these secret plans to get an unfair advantage over others. Imagine friends secretly agreeing to share answers on a test – that's a type of collusion!

In the world of business, collusion often happens when companies secretly work together. They might agree to set prices very high, even if it's not fair to customers. Or, they might agree to limit how many products they sell. This makes their products seem more special or rare, so people are willing to pay more. This secret teamwork helps them make more money than if they competed fairly.

Sometimes, big companies form a group called a cartel. This is a special type of collusion where they make secret deals to control a market. They might agree not to compete with each other, which means they can keep prices high and earn huge profits. This makes it hard for smaller companies to compete and for customers to find fair prices.

What is Collusion?

Collusion is like a secret handshake between rivals. Instead of competing fairly, they team up in secret. Their goal is to get something they shouldn't, usually money or power. It's often about cheating the system or other people.

Why Do People Collude?

People or groups collude for many reasons, but it usually comes down to gaining an unfair edge.

• More Money: Businesses might collude to raise prices together. This way, they all make more profit without having to compete.
• Less Competition: If companies secretly agree not to compete, they don't have to work as hard to attract customers.
• Winning Unfairly: In some situations, like bidding for a project, groups might collude to make sure one of them wins, even if they aren't the best choice.

How Collusion Works in Business

When companies collude, they often try to control the market. This means they try to control how many products are available and what prices they are sold for.

Price Fixing

One common type of business collusion is called price fixing. This is when competing companies secretly agree to sell their products or services at the same high price.

• Imagine two stores that sell the same video game. If they secretly agree to both sell it for $60, even if it usually costs $40, customers have to pay more.
• This removes competition, so customers don't have a choice to buy it cheaper elsewhere.

Controlling Supply

Another way companies collude is by controlling the supply of products.

• This means they secretly agree to produce less of something.
• When there are fewer products available, people are often willing to pay more for them.
• This makes the products seem more valuable and helps the colluding companies earn bigger profits.

Is Collusion Allowed?

In most countries, collusion is against the law. Governments have rules called "antitrust laws" or "competition laws" to stop it. These laws are in place to make sure businesses compete fairly. Fair competition helps customers get good prices and encourages companies to create better products.

When companies collude, it hurts customers because they pay higher prices. It also hurts other businesses that play by the rules. That's why governments work to find and stop secret agreements that harm fair competition.

Images for kids

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  Future collusive profits

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  Set higher prices

See also

In Spanish: Colusión para niños