Tacit collusion occurs when cartels are illegal or overt collusion is absent. This is also known as price leadership, as firms may stay within the law but still tacitly collude by monitoring each other's prices and keeping them the same. Usually, this occurs when a firm emerges to set the general industry price and other firms follow suit. Oligopolists usually try not to engage in price cutting, excessive advertising or other forms of competition. Thus, there may be unwritten rules of collusive behaviour such as price leadership (tacit collusion). A price leader will then emerge and sets the general industry price, with other firms following suit. Collusion is a term to refer to acts of cooperation or collaboration among rival entities. ... A cartel is a group of legally independent producers whose goal it is to fix prices, limit supplies and limit competition. ... Price leadership is an observation made of oligopic business behavior in which one company, usually the dominant competitor among several leads the way in determining prices, the others soon following. ... An oligopoly is a market form in which a market is dominated by a small number of sellers (oligopolists). ...

Forms

Dominant firm price leadership

When follower firms set the same price as an established leader. The price leader may be the largest firm that dominates the industry.

Barometric firm price leadership

The most reliable firm emerges as the best barometer of market conditions, or the firm could be the one with the lowest costs of production, leading other firms to follow suit. Although this firm might not be dominating the industry, its prices are believed to reflect market conditions which are the most satisfactory, as the firm would most likely be a good forecaster of economic changes.

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