Barriers There can be significant barriers to collusion. In any given industry, these may include: The number of firms: As the number of firms in an industry increases, it is more difficult to successfully organize, collude and communicate. Cost and demand differences between firms: If costs vary significantly between firms, it may be impossible to establish a price at which to fix output. Cheating: There is considerable incentive to cheat on collusion agreements; although lowering prices might trigger price wars, in the short term the defecting firm may gain considerably. This phenomenon is frequently referred to as "chiseling". Potential entry:
New firms may enter the industry,
New firms may enter the industry, establishing a new baseline price and eliminating collusion (though anti-dumping laws and tariffs can prevent foreign companies entering the market). Economic recession: An increase in average total cost or a decrease in revenue provides incentive to compete with rival firms in order to secure a larger market share and increased demand.