Collusion between retailers can save costs but harm consumers. Penalties can deter collusion but may limit economic activity. Manufacturers must choose competitive selling channels and design compensation plans to prevent collusion. Collusion only benefits retailers when they are comparable in size. Stronger retailers can dominate smaller ones in collusive agreements. Introducing online platforms can help manufacturers combat collusion. Differentiated wholesale prices with effective penalties can increase profits for the whole supply chain. Manufacturers can use these findings to make better retail channel management decisions.