Crony capitalism is a pejorative term describing an allegedly capitalist economy in which success in business depends on close relationships between businesspeople and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth.
Crony capitalism is believed to arise when political cronyism spills over into the business world; self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals.
In its lightest form, crony capitalism consists of collusion among market players. While perhaps lightly competing against each other, they will present a unified front to the government in requesting subsidies or aid.
…it is not uncommon for current industry players to gain control of the "watchdog" and use it against competitors. This phenomenon is known as regulatory capture. A famous early example in the United States would be the Interstate Commerce Commission, which was established in 1887 to regulate the railroad "robber barons;" instead, it quickly became controlled by the railroads, which set up a permit system that was used to deny access to new entrants.