In business, collision happens when two companies that are competing agree to work together; for example, in order for both firms to make greater profits, they agree to set higher prices. There are several reasons that may allow organizations to engage in collusion; however, the main reason is to make higher profits, and this is with the aim of reducing the competition in the market and at the expense of the customers. The higher prices are reached by making deals with the retailers and suppliers, monopoly pricing, sticking to output quotas, and collusive tendering (Bernhardt & Chambers, 2016). Price leadership, tacit, and formal illusion are the categories of collusion. Formal collusion is when cartels are formed when making formal agreements to stick to high prices. Tacit collusion involves colluding without reaching out to the competing companies. Price leadership is unofficial collusion, where the prices of the market leader are followed (Bernhardt & Chambers, 2016). For example, in efforts to make more profits, several electronic companies in Canada colluded through CRT price-fixing. However, a class-action lawsuit was made with an allegation of price-fixing, and they all agreed to pay a settlement fee of $49.8 million. The firms that colluded include Toshiba, Panasonic, Philips, Samsung, Hitachi, and Chunghwa (CTVNews, 2018).
It is difficult for authorities to spot and prove collusion because these types of agreements are often done secretly. This is because any conspiracy to raise prices above the competitive levels comes with violations of set policies and agreements. Therefore, to avoid subsequent punishment by authorities or detection by rivals, the collusion is then made secret. The collusion in the fixing of CRT prices took a long time to be identified by the people and not even the government. In fact, it was not the authorities but direct and indirect buyers that filed multiple lawsuits against the electronic manufacturers (CTVNews, 2018).
One of the famous game theories is the prisoner’s dilemma, which was conceptualized in 1950 by Melvin Dresher and Merril Flood. In economics, the prisoner’s dilemma happens in various aspects. It provides a framework on how to gain a balance between competition and organization as it is a significant tool for strategic decision-making ((Bernhardt & Chambers, 2016). For example, in the CRT lawsuit, the prisoner’s dilemma is applicable. The case was filed by buyers who felt violated by the price-fixing of the products. No firm confessed guilty to the crime; however, they all agreed to make a settlement that was worth $ 49.8 million.
Collusion is possible if it is based on price leadership. Firms will not have to make it a secret of their collusion when they attempt to informally collude based on the high prices fixed by the market leaders. This form of collusion is impossible to verify if it is just a natural operation in the market or unfair competition. It is generally illegal for rival companies to get into collusion. Furthermore, it is challenging for organizations to have coordinated actions, and there are threats that a company may undermine others or go against the agreement. In the case of CRT, collusion seems to have been possible where several electronic companies made arrangements to fix the prices of CRT (CTVNews, 2018). This may have sparked competition as each firm aimed at reaching out to the most number of customers with similar prices as others.
Many governments across the world have a wide range of policies that are meant to regulate how firms carry out their business operations and also protect the consumers. The major objectives of these regulations are to offer an equal playing field for companies operating in the same market while preventing them from obtaining too much power over their rivals. These laws are called the antitrust laws. Antitrust laws are the laws that were created with the goal of protecting customers from predatory business practices. Commonly referred to as competitive laws, they ensure that the open-market economy is promoted through fair competition (Competitive Enterprise Institute, 2019). For example, there are certain business practices that are questionable that antitrust laws are applied on; they include price-fixing, bid-rigging, and monopolies. In Canada, most business conducts are governed by the Competition Act. With the drive of avoiding anti-competitive actions in the market, the regulation contains both civil and criminal provisions. Also, the act helps in acknowledging the responsibility of foreign competition in Canada, and it allows for the expansion of opportunities for Canadian businesses in the global market. More so, it ensures that businesses of all sizes, whether small or medium-sized, to receive equal opportunities in their participation in the economy. It also protects consumers with product choices and prices that are competitive (Government of Canada, 2018).
Having antitrust laws policies is a debatable issue with some arguments for and others against them. Those in support argue that the laws are necessary as they promote competition in the marketplace. Hence, they must be applied more vigorously. However, the people against the antitrust laws argue that they hurt innovation and competition as well as the consumers. First, there is a reason that it restraints monopolization and trade. It is through government assistance that monopolies can last. If extra-normal monopoly profits are made by an organization, the only way to keep its rivals off is through the use of the government on its behalf. The enforcement of antitrust laws will not help this; rather, its ability to take away the authority’s power to grant favours to rent-seekers. Other arguments against antitrust laws include price discrimination, predatory pricing, exclusive dealings, promoting bundling or tying, and exploiting the technological lock-in (Bernhardt & Chambers, 2016). Apple Inc. has been facing several antitrust investigations. The App Store is Apple’s most targeted area of trust lawsuits. One of the longest lawsuits which are still under investigation is by Spotify. The main argument by Spotify is that Apple is not subjected to similar App store fees (Owen, 2020). The antitrust laws are supposed to protect Spotify from unfair pricing granted to Apple.
The most probable outcome of this case is that Spotify will be granted similar rights as Apple, where they will both be subjected to the same App store fees. Therefore, Spotify will be protected from unfair pricing by Apple. In the future, similar antitrust law cases can be addressed by having more laws and regulations on detailed issues of the antitrust challenge. No matter the size of a firm, all businesses operating in the same market must be governed by similar antitrust laws or any other regulations.
Bernhardt, D., & Chambers, C. P. (2016). Profit-Sharing (with workers) Facilitates Collusion (among firms). The RAND Journal of Economics, 37(3), 483-502.
Competitive Enterprise Institute. (2019, March 12). Antitrust Explained. Retrieved from Youtube: https://www.youtube.com/watch?v=71j3ET_spI8&feature=youtu.be
CTVNews. (2018, November 2). CRT settlement: Court approve $49.8 M payout in an electronic class action. Retrieved from https://www.ctvnews.ca/business/crt-settlement-courts-approve-49-8m-payout-in-electronics-class-action-1.4160613
Government of Canada. (2018, February 22). The Competition Act. Retrieved from https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04267.html
Owen, M. (2020, September 7). Apple’s International antitrust battles-the story so far. Retrieved from https://appleinsider.com/articles/20/08/15/apples-antitrust-battles—the-story-so-farOrder Now