Collusion is when firms come together and agree on price and output levels in order to decrease competition and increase profit. When they do this, they are acting as a single monopolist so they can earn monopoly profit. Cartels are more popular where the product is homogeneous as with oil, steel, etc. The cartel offers to its member s greater certainty about the behavior of the competitors. They are able to block entry into the market.
Consumers typically suffer under cartels because prices are higher and output is limited.
Collusion and cartels are illegal in the U.S. Other countries are much more tolerant. Some countries encourage it. OPEC is a cartel. The greater the number of firms in the industry, the more difficult it is for the members to negotiate. If the cartel can not block the entry of a new firm, the price will be forced down to where all firms make a normal profit.