Competition Matters

A few powerful manufacturers dominating the market and going to great lengths to conceal their lucrative price-fixing conspiracy is an example of a “collusive oligopoly.” 

The term “collusive” or “collusion” describes a situation in which parties conspire with each other.  Any price-fixing or bid-rigging scheme is collusive.

The term “oligopoly” is a bit more difficult to define but important to understand when trying to stay alert for signs of anticompetitive activity by vendors. An oligopoly is a market that is dominated by a few large sellers. Because there is not much change in the sellers in the market over time, they can easily anticipate each other’s pricing moves and often parallel each other in pricing and other business behavior. For this reason, oligopolies can give the appearance of collusion, even when the participants are actually acting independently.

However, oligopolies can be breeding grounds for price-fixing or other anticompetitive agreements.  With the same few players in the market year after year, it takes few communications to form such an agreement and to convert the oligopoly into a collusive oligopoly. Thus, when you purchase products or services in an industry that is controlled by the same few large sellers each year, be especially alert for signs of price-fixing, bid-rigging, or other anticompetitive agreements.