This refers to cooperation between independent firms which serves to modify the
behaviour of the firms. Agreements or ‘understandings’ could be reached on pricefixing,
output quotas or the segmentation of markets. Collusion can be tacit (or
informal) as in the case of price leadership in oligopolistic markets, where one firm takes
the lead in setting prices and the others follow suit; or formal as in the case of a cartel
(see Chapter 7). By forming or joining a cartel, firms can operate like a monopolist –
they can exercise some control over price or output and therefore reduce some of the
uncertainty under which they operate.