Microeconomics Question from Walter E. Williams:[]

What is the difference between collusion, cooperation and competition? How would you define collusion between two people so as to exclude partnerships and corporate joint ownership from the concept of collusion? Why is collusion considered undesirable? How can you differentiate between an effective collusion and an ineffective collusion?


Competition is the interpersonal striving for more of what is scarce and desired. Cooperation connotes joint action to increase total stock of wealth to be distributed. An agreement or coalition that results in smaller output, lower quality, or higher prices is commonly called a collusion. A coalition that results in a better product or lower price, thus yielding a gain to both consumers and producers is instead called a firm. It is the element of deception which makes collusion undesirable. An effective collusion can be identified by the costs incurred to enforce restrictions and prohibitions. Such collusions are sufficiently effective to make them worth those costs of enforcement. Additionally, simultaneity of price actions and dominance by one firm, though not sufficient without enforcement, are characteristic.

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