How tacit collusion makes consumers pay

Big business doesn’t need the cover of a quiet round of golf between executives to collude on prices. Indeed, they don’t even need to talk at all. By simply communicating through their prices they can, and are, lining their pockets at the consumer’s expense. And it is perfectly legal.

But now for the first time we have empirical evidence showing how this so-called “tacit collusion” works. My research, with Associate Professor Nicolas de Roos at The University of Sydney, analysed more than 1.7 million unique petrol price data points to show how tacit collusion among petrol retailers in Perth between 2010 and 2015 inflated the price motorists were paying to fill up their tanks, and helped increase profit margins in the range of 50 per cent.

We are not suggesting the petrol retailers are engaged in explicit collusion. But the findings present an urgent new challenge for policy makers and the Australian Competition and Consumer Commission in dealing with markets that are dominated by just a few big players among many small ones. Big players can act like conductors, and smaller players can act like the orchestra, in coordinating on tacitly collusive pricing behaviour.