What occurs when large businesses collaborate to set prices, which may lead to reduced competition?

The correct answer is that this situation describes a cartel. A cartel is a formal agreement between competing firms to control prices or production in order to maximize profits and limit competition. By collaborating on pricing, members of a cartel can effectively manipulate market conditions to their advantage, reducing competition and potentially leading to higher prices for consumers. This behavior is generally illegal in many jurisdictions because it disrupts the natural market forces of supply and demand, which are essential for a competitive economy.

In contrast, while a monopoly refers to a single company dominating a market with no competition, and market dominance describes a situation where one company has a significantly higher market share than its competitors, these don't specifically involve cooperation between multiple businesses to set prices. A trust, although it might suggest an agreement among firms, often implies broader control over a particular industry and can include ownership through stock or management arrangements, rather than just price-setting. Therefore, the most accurate term for collaborating businesses that set prices to reduce competition is a cartel.