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This week's Wiki-Wednesday topic is: COLLUSION. The following is an excerpt from the Wikipedia page on this topic. Click here to be connected to the full page. Consider this prep for tomorrow when we bring you a run down on the current news story regarding Paul Devine, the Apple procurement professional that is in the news for taking kickbacks in exchange for business and inside information.
Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage.[citation needed] It is an agreement among firms to divide the market, set prices, or limit production.[1] It can involve "wage fixing, kickbacks, or misrepresenting the independence of the relationship between the colluding parties".[2] In legal terms, all acts effected by collusion are considered void.[3]
Collusion is largely illegal in the United States, Canada and most of the EU due to competition/antitrust law, but implicit collusion in the form of price leadership and tacit understandings still takes place. Several examples of collusion in the United States include:
- Market division and price-fixing among manufacturers of heavy electrical equipment in the 1960s, including General Electric. [4]
- An attempt by Major League Baseball owners to restrict players' salaries in the mid-1980s.
- The sharing of potential contract terms by NBA free agents in an effort to help a targeted franchise circumvent the salary cap
- Price fixing within food manufacturers providing cafeteria food to schools and the military in 1993.
- Market division and output determination of livestock feed additive, called lysine, by companies in the US, Japan and South Korea in 1996, Archer Daniels Midland being the most notable of these.[5]
- Chip dumping in poker or any other high stake card game.
There are many ways that implicit collusion tends to develop:
- The practice of stock analyst conference calls and meetings of industry participants almost necessarily results in tremendous amounts of strategic and price transparency. This allows each firm to see how and why every other firm is pricing their products.
- If the practice of the industry causes more complicated pricing, which is hard for the consumer to understand (such as risk-based pricing, hidden taxes and fees in the wireless industry, negotiable pricing), this can cause competition based on price to be meaningless (because it would be too complicated to explain to the customer in a short advertisement). This causes industries to have essentially the same prices and compete on advertising and image, something theoretically as damaging to consumers as normal price fixing.
