 DEFINITION |
The prices Canadians pay for goods and services are normally determined by the interplay of competitive market forces. Firms compete with one another for market share by minimizing their costs and trying to offer better price–quality bargains in the marketplace than their competitors. This process benefits consumers because it encourages productivity improvements and drives down prices. However, competition can be disrupted if collusion takes place among sellers in the market.
Collusion occurs when two or more companies agree to reduce competition by setting production quantities or prices. For collusion to succeed, the firms involved must have enough market share to influence the price-setting mechanism. When companies collude to boost prices or restrict output, they tend to lose few sales because consumers lack other choices at lower prices. The colluding firms will realize higher joint profits by their actions.
Collusion is illegal in Canada: the Competition Act has criminal provisions that prohibit anti-competitive business activities by companies and individuals. The Act is enforced by the federal Competition Bureau
| HOW
DOES IT AFFECT CANADIANS? |
Canadians purchasing goods or commodities controlled by a collusion agreement pay a higher price than if the free market determined the price. Colluding firms seek higher profits at consumers’ expense.
| LINKS |
Competition Bureau
Source: Government of Canada
http://www.strategis.ic.gc.ca/epic/internet/incb-bc.nsf/en/Home
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