Explain the difference between a cartel and tacit collusion. Is tacit

Explain the difference between a cartel and tacit collusion. Is tacit collusion illegal in the United States? Explain.

What will be an ideal response?

ANSWER

A cartel consists of a formal agreement among firms to coordinate their production and pricing decisions so as to maximize the joint profits of the cartel members. Cartels are illegal in the United States. Tacit collusion, on the other hand, does not involve formal agreements among firms, but instead involves such behaviors as uniform prices, most-favored-firm clauses in sales contracts, advance notice of price changes, and information exchanges. There is a gray area regarding what is considered illegal when it comes to tacit collusion. To be specific, one must consider whether the firms in an industry are deliberately engaging in practices designed to control prices. Thus, the mere fact that the price of a loaf of bread is the same or approximately the same in the different grocery stores in a city is not illegal. If, however, it was discovered that store owners meet regularly to set the price of bread, the line would be crossed. In a similar fashion, trade organizations that meet to discuss business trends and product developments are not considered illegal. However, if those same organizations facilitate the exchange of information that is used to set prices for a group of the firms in the industry, the line would once again be crossed, as the court ruled in the Hardwood Case.