Collusion is supposedly limited in the free market. According to my economics course, game theory dictates that in a competitive free market, those at the top will not cooperate. More specifically, if advertising benefits two companies, but only if the other doesn't advertise, both companies will end up advertising since they don't know what the other will do.
However, if you do nothing, you gain a potential cooperative enterprise. Worst case scenario, you lose a temporary profit in exchange for a potentially large gain.
Consider this scenario. You and Joe, who don't know one another, are planting trees to sell to neighbors. Neither of you have advertised. Upon thinking of advertising, you realize your business is primarily consistent. You may make some gains. However, the long term losses of entering into a competition are simply not worth the advertisement expenditure.
Does modern economics have it wrong, in some way, when it assumes that "rational self-interested business owners" will compete rather than cooperate? What challenges have other economists given to the standard interpretation of business relations?