Definition of explicit collusion

Explicit collusion is an agreement among competitors to suppress rivalry that relies on interfirm communication and/or transfers.  Rivalry between competitors erodes profits; the suppression of rivalry through collusion is one avenue by which firms can enhance profits.

Explicit collusion is distinct from tacit collusion, which is not illigal.  Economists label equilibria in which firms recognise their ongoing interdependence, but that do not require direct interaction between firms, such as communication or transfers, as tacit rather than explicit collusion.

When purchases are sufficiently large and infrequent, or demand is sufficiently uncertain, or buyers are strategic, it may not be possible for firms to elevate prices with only tacit collusion, even if the firms are engaged in repeated interaction over time.

Example

The primary manufacturers of vitamins, including Hoffmann-La Roche, BASF, Rhone-Poulenc, Merck KgaA, and others, admitted to explicit collusion, which they organised as an international market-sharing agreement, for several years during the 1990s.  Evidence suggests that even after the end of explicit collusion, for vitamin products manufactured by only two of the former conspirators, firms were able to maintain high prices through tacit collusion. [1]

See

Article - Tough protectors: Competition authorities clamp down

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