collapsed in the mid-1980s, with large increases in output and dramatic
declines in the world price. Second, many discoveries of new oil reserves
around the world led to large declines in OPEC’s market share, with an
associated reduction in the cartel’s ability to influence the world price.
Today, OPEC controls less than one-third of the world’s supply of oil.
While the cartel still exists and its members still meet regularly to discuss
their output levels, the cartel no longer has the significant effect it once
had on the world oil market.
A more local example is from Canada’s grocery business. In 2017,
Canadian grocery giant Loblaws admitted to participating in a scheme
with other grocery retailers to raise the prices of packaged bread. The
price-fixing agreement had apparently been in place between 2001 and
- The Canadian government immediately began a formal
investigation that was still in progress when this book went to press in
the fall of 2018.
Tacit Collusion
Firms may behave cooperatively without any explicit agreement to do so,
simply because each firm recognizes that maximizing their joint profits is
in its own interest. This is called tacit collusion. However, the same
incentive exists for any one firm to behave competitively in an effort to
further increase its own profits.
In many industries there is suggestive evidence of tacit collusion,
although it is very difficult to prove rigorously. For example, when one