Should the markets be allowed to be purely laissez faire?

Should the markets be allowed to be purely laissez faire? 

In pursuit of profit and self-interest, firms can either innovate with new products or collude with competitors. The first benefits society. The second costs society.

No. Why not? Only one of the paths that firms take in pursuit of profit and self-interest benefits society—when they innovate and produce products of high quality and low cost.
Unfortunately the other path costs society—they collude with competitors, raise prices, pollute, and lie about quality. All of which benefit the firm at the cost of society.
Government regulations are needed to guard against firms following that second path.

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