Industrial location policies are generally deemed advantageous for economic growth, yet they may inadvertently facilitate firms’ collusive behavior. Given the non-uniform nature of industrial location policies, their effects could varies due to heterogeneity in government involvement, incentives, regulation, and export orientation. To elucidate this, we examine firms’ natural tendency for collusion within Indonesia’s Special Economic Zones (SEZs) and Industrial Area (IAs) representing distinct cases for exploring this variability. Remarkably, our findings are intriguing: firms within IAs exhibit higher collusive behavior, while SEZ firms display lower tendencies compared to firms outside such areas. Notably, these findings are independent of differences in exporting activities, highlighting the role of government involvement, incentives, and regulation as key factors. © The Author(s) under exclusive licence to Associazione Amici di Economia e Politica Industriale 2024.