Collusion Has No Place in Essay

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Collusion, therefore, has the impact of delivering higher prices to consumers than they would otherwise experience. In the long-run, this keeps all firms in the industry in business but in the short-run it is detrimental to consumers, so most forms of collusion are not allowed by regulators. The irony is that regulators are needed to maintain the "free" nature of the market -- to keep prices competitive. This is necessary when barriers to entry are high, as few new firms will enter an oligopolistic industry that is engaging in dangerous price wars.

There are examples of collusion in the world, however. OPEC is probably the biggest one. The cartel sets its output (around 1/3 of global oil output) in order to manage the level of total global output. This has the effect of managing the prices, as long as non-OPEC nations do not change their output levels to counterbalance OPEC's moves.

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Collusion among these nations is allowed because most of them are dependent on oil for the bulk of their foreign trade revenues. It is in the best interests of OPEC nations to maintain high prices and output stability, as these are beneficial to their countries. Other nations do not need to play along, but there are limits to how much other nations can expand capacity -- it is a slow and expensive process to do so. As a result, the cartel is able to persist with the collusion, and there is little that other countries can do to break this. There are no international laws against collusion, in part because many economies do not subscribe to the free market economy concept, either for philosophical reasons (Cuba, Venezuela) or because their economies lack sufficient diversification or size to excel in free market conditions......

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