Discussion 1 – Colluding with Collusion
Learning Objectives Covered
• LO 04.01 – Understand industry conditions for cooperation and collusion
• LO 04.04 – Discuss regulations that currently impact international trade for large and small organizations
International cooperation (a positive practice among countries) and collusion (a negative and sometimes illegal practice among countries) are real and present methods in the global marketplace. As a future international business executive, you want to become familiar with these concepts in preparation for your career. You also need to understand regulations that impact international trade, both for large and small organizations, and the ethics that come with them.
If you have been paying attention to politics over the last few years—and it’s kind of hard not to—you’ve probably heard about the Donald Trump campaign allegedly colluding with Russian officials to ensure he was elected President back in 2016. Russians were accused of recruiting and paying Americans to engage in political activities that promoted Trump. Many claimed that the cooperation between the Trump campaign and a foreign government was a criminal violation and possibly impeachable (Moffatt, 2019). We have two practices to look at here: collusion, a conspiracy with illegal activities between countries, and global cooperation where countries come together for good. Let’s learn a bit more about both.
Cooperation and Collusion
Cooperation among countries can help solve joint problems along with sharing knowledge and best practices—doing so helps countries work together to accomplish global issues and missions. It’s like when a family pitches in to clean the entire house—working together and cooperating to get tasks done—except global cooperation includes countries coming together over issues like war, poverty, environment, and diseases. Like a family working together to accomplish a daunting job, countries are stronger when they join forces.
International cooperation is an effective tool that involves adapting, creating, sharing, and transferring knowledge and experiences while making the most of existing resources and capacities. It’s vital to boost the world’s economy and build a strong team that comes together to achieve the same goals. Like a team that wins the Super Bowl, countries must work hard, stay focused, and stick together to achieve international cooperation.
An example of international cooperation includes building the International Space Station. A partnership that includes several European countries, the United States, Japan, Canada, and Russia built the space station piece-by-piece in space with more than 40 missions (Building, n.d.). This is the world’s largest international cooperative program in science and technology’s history. It demonstrates what can happen when countries come together in the spirit of assisting, sharing, and improving.
Collusion, on the other hand, is a non-competitive, secret, and sometimes illegal agreement between rivals that attempts to disrupt the market’s equilibrium (Young, 2019). This often takes place between people or companies who are typically rivals but conspire to work together to gain an unfair market advantage. Common acts of collusion include price-fixing, synchronized advertising, and sharing insider information (Young, 2019).
• Price fixing occurs when a small number of companies, referred to as an oligopoly, collude to restrict output and/or fix prices to achieve above normal market returns. Companies in the same market that offer the same product form an agreement to set a lower price level to forcibly drive out smaller competing companies. Price fixing eliminates or reduces competition completely while also making it more difficult for new companies to enter the market.
• Synchronized advertising tricks buyers into buying. It occurs when partnering businesses seek to limit the consumer’s knowledge about a product or service for an added advantage (Young, 2019).
• Sharing insider information occurs when colluding groups have the chance to gain advantages through sharing private or preliminary information with one another (Young, 2019). This allows parties to enter and exit trades before the shared information is publicly available, giving them an unfair advantage.
A real-life example of collusion occurred in 2015 in New York with the company Apple. Apple was accused of organizing an illegal conspiracy with five book publishers to raise the price of ebooks; this is a form of price-fixing. Initially, Apple was ordered to start issuing payouts to consumers in a class-action settlement, and the appeals court in New York ultimately upheld that ruling.
International Trade Regulations
Global trade is a big business. In 2018, total world trade was $39.6 trillion. That’s $20.8 trillion in exports and $18.9 trillion in imports (Amadeo, 2020).
As we looked at in week two, there are political realities that influence international trade in the forms of tariffs, import quotas, product standards, and government subsidies. There are also laws known as trade regulations enacted by Congress to ensure a free and competitive economy. Congress also has exclusive power over trade activities between the United States and foreign countries.
The goal of trade regulations is to promote free trade and fair competition while prohibiting anti-competitive business practices. Anti-competitive conduct is strictly forbidden, including price-fixing, bid-rigging (a form of fraud in which a contract is promised to one party even though, for the sake of appearance, other parties also present a bid), and monopolies (a company with exclusive control over a commodity, group, or service). Trade regulations have the backing of the law (Trade regulation, n.d.).
Ethical trade is a growing practice that means retailers and their suppliers take responsibility for improving the working conditions of the people who create their products. Many of these workers are based in poor countries where laws designed to protect workers’ rights are inadequate or not enforced (Ethical trading, n.d.). Companies who commit to ethical trade adopt a code that they expect all their suppliers to work towards; these include “wages, hours of work, health and safety, and the right to join free trade unions” (Ethical trading, n.d.).
Global businesses can choose to adhere to this code and still follow the applicable national and international laws, regulations, and standards in their home country and in the country where the product is sold (Ethical trading, n.d.). Other ethical decisions can include refusing child labor, providing safe and hygienic working conditions, enforcing reasonable working hours, committing to humane treatment, conserving natural resources, refusing animal testing, and avoiding discrimination of any type. Capri Hills Winery, while not forced to follow these guidelines, can choose to operate above minimum standards. More and more, ethical trading is being viewed as essential in global business, not a luxury.
Amadeo, K. (2020, February 26). International trade: Pros, cons, and the effect on the economy. The Balance. Retrieved on March 3, 2020. https://www.thebalance.com/international-trade-pros-cons-effect-on-economy-3305579 (Links to an external site.)
Building the International Space Station (n.d.). European Space Agency. Retrieved on March 3, 2020. www.esa.int/Science_Exploration/Human_and_Robotic_Exploration/International_Space_Station/Building_the_International_Space_Station3 (Links to an external site.)
Cooperation among countries (n.d.). World Health Organization. Retrieved on March 3, 2020. https://www.who.int/country-cooperation/what-who-does/inter-country/en/ (Links to an external site.)
Ethical trading policy (n.d.). Envirovent. Retrieved on March 3, 2020. https://www.envirovent.com/ethical-trading-policy/ (Links to an external site.)
Moffatt, M. (2019, May 4). Definitions and types of collusion. Thought Co. Retri eved on March 3, 2020. https://www.thoughtco.com/collusion-economics-definition-1147009 (Links to an external site.)
Stanford, C. (n.d.). How markets and trade relations affect business. Fleximize. Retrieved on March 3, 2020. https://fleximize.com/articles/001264/how-markets-and-trade-relations-affect-business (Links to an external site.)
Trade regulation law (n.d.). HG.org. Retrieved on March 3, 2020. https://www.hg.org/trade.html (Links to an external site.)
Young, J. (2019, May 11). Collusion. Investopedia. Retrieved on March 2, 2020. https://www.investopedia.com/terms/c/collusion.asp (Links to an external site.)
Sources of Information
Chappelow, J. (2019, May 1). Oligopoly. Investopedia. Retrieved on March 3, 2020. https://www.investopedia.com/terms/o/oligopoly.asp (Links to an external site.)
Oeung, M. (2015, May 16). The importance of global cooperation. Muyyu Oeung. Retrieved on March 3, 2020. https://oeungmuyyu.wordpress.com/2015/05/16/the-importance-of-global-cooperation/ (Links to an external site.)
Roberts, J. (2015, June 30). Apple conspired with book publishers, appeals court confirms. Fortune. Retrieved on March 3, 2020. https://fortune.com/2015/06/30/apple-conspired-with-book-publishers-appeals-court-confirms/ (Links to an external site.)
Trade regulations are in full effect between countries; however, ethical guidelines between countries are less clear. How might Capri Hills Winery use ethics to benefit their expansion and draw in customers? How could ethics impact their global marketing plan?
For your citation, use articles that show examples of collusion and cooperation. You can also find articles from experts that suggest ethical choices in a global marketplace
Discussion 1 – Colluding with Collusion