Collusive Behaviour
Collusive behaviour occurs when firms agree (either tacitly or overtly) to fix output quotas, set prices and avoid competitive pressures.
Collusive behaviour is a way for firms to increase profit. It will lead to higher prices for consumers.
Types of Collusive Behaviour
Chapter 1 of the Competition Act investigates restrictive practices (and which mirrors article 81 in the EU).These restrictive practices include:
- Price Fixing. This occurs when competitors agree to increase prices together
- Vertical Price Fixing. These are arrangements when firms agree with its retailer to keep prices high. This could involve Resale Price Maintenance which prevents retailers cutting prices.
- Another example is supermarkets could collude to keep prices to farmers low
- Collusive tendering. This is when firms agree to both put in high prices to win a contract and prevent price competition e.g. Concrete industry in the 1980s
- Agreements to limit output and share out markets
- Sharing information which can be used to avoid price competition
Problems of Collusive Behaviour
- Higher prices for consumers
- Allocative inefficiency - Firms set price higher than marginal cost.
- Decline in consumer surplus - higher price, lower demand
- Problems of Monopoly
Essays and Revision Notes on Competition Policy
Evaluation of UK Competition Policy
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