Collusion

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DEFINITION of 'Collusion'

A non-competitive agreement between rivals that attempts to disrupt the market's equilibrium. By collaborating with each other, rival firms look to alter the price of a good to their advantage. The parties may collectively choose to restrict the supply of a good, and/or agree to increase its price in order to maximize profits. Groups may also collude by sharing private information, allowing them to benefit from insider knowledge.

BREAKING DOWN 'Collusion'

Collusion involves people cooperating or working together when they should be competing. In the stock market, collusion can take many forms. Traders participating in accommodation trading, where goods are exchanged for non-competitive prices, are involved in collusion.
Colluding traders might share private information regarding upcoming takeovers, allowing them to benefit from insider trading. Price rigging also involves the collusion of sellers, who inflate the price of an asset to realize higher profits.

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