Editing Collusion (section)

== Barriers ==
There can be significant barriers to collusion. In any given industry, these may include:

* '''The number of firms:''' As the number of firms in an [[Industry (economics)|industry]] increases, it is more difficult to successfully organize, collude and communicate.
* '''Cost and demand differences between firms:''' If costs vary significantly between firms, it may be impossible to establish a price at which to fix output. Firms generally prefer to produce at a level where marginal cost meets marginal revenue, if one firm can produce at a lower cost, it will prefer to produce more units, and would receive a larger share of profits than its partner in the agreement.<ref name=":0" />
*'''Asymmetry of information:''' Colluding firms may not have all the correct information about all other firms, from a quantitative perspective (firms may not know all other firms' cost and demand conditions) or a qualitative perspective (moral hazard). In either situation, firms may not know each others' preferences or actions, and any discrepancy would incentive at least one actor to renege.<ref name=":0" />
* '''Cheating:''' There is considerable incentive to cheat on collusion agreements; although lowering prices might trigger [[price wars]], in the short term the defecting firm may gain considerably. This phenomenon is frequently referred to as "chiseling".
* '''Potential entry:''' New firms may enter the industry, establishing a new baseline price and eliminating collusion (though anti-dumping laws and tariffs can prevent foreign companies from entering the market).
* '''Economic recession:''' An increase in average total cost or a decrease in revenue provides the incentive to compete with rival firms in order to secure a larger market share and increased demand.
* '''Anti-collusion legal framework and [[collusive lawsuit]].''' Many countries with anti-collusion laws outlaw side-payments, which are an indication of collusion as firms pay each other to incentivize the continuation of the collusive relationship, may see less collusion as firms will likely prefer situations where profits are distributed towards themselves rather than the combined venture.<ref name=":0" />
* '''Leniency Programs:''' Leniency programs are policies that reduce sanctions against collusion if a participant voluntarily confesses their behavior or cooperates with the public authority’s investigation.<ref>{{Cite journal |last=Park |first=Sangwon |date=2014 |title=The effect of leniency programs on endogenous collusion |url=https://ideas.repec.org//a/eee/ecolet/v122y2014i2p326-330.html |journal=Economics Letters |language=en |volume=122 |issue=2 |pages=326–330|doi=10.1016/j.econlet.2013.12.014 }}</ref> One example of a leniency program is offering immunity to the first firm who comes clean and gives the government information about collusion.<ref>{{Cite journal |last=Emons |first=Winand |date=2020-05-01 |title=The effectiveness of leniency programs when firms choose the degree of collusion |url=https://www.sciencedirect.com/science/article/pii/S0167718720300424 |journal=International Journal of Industrial Organization |language=en |volume=70 |pages=102619 |doi=10.1016/j.ijindorg.2020.102619 |issn=0167-7187|hdl=10419/204916 |hdl-access=free }}</ref> These programs are designed to destabilize collusion and increase deterrence by encouraging firms to report illegal behavior.