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Under conditions of oligopoly, the pricing and output actions of one firm have a significant impact upon that of its rivals. Firms may after some period of repeated actions become conscious or aware of this fact and without an explicit agreement coordinate their behaviour as if they were engaged in collusive behaviour or a cartel to fix prices and restrict output. The fear that departure from such behaviour may lead to costly price cutting, lower profits and market share instability may further create incentives for firms to maintain such an implicit arrangement amongst themselves.

This form of conscious parallel behaviour or tacit collusion generally has the same economic effect as a combination, conspiracy or price fixing agreement. However, whether or not conscious parallel behaviour constitutes an illegal action which is restrictive of competition is a subject of controversy in both competition law and economics. Price uniformity may be a normal outcome of rational economic behaviour in markets with few sellers and homogenous products.

Arguments have been advanced that the burden of proof must be higher than circumstantial evidence of concerted or parallel behaviour and uniform pricing and output policies. In other words, conscious parallelism in and of itself should not necessarily be construed as evidence of collusion. The problem arises more from the nature of the market or industry structure in which firms operate than from their respective behaviour.

Source Publication:
Glossary of Industrial Organisation Economics and Competition Law, compiled by R. S. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.


Statistical Theme: Financial statistics

Created on Thursday, January 3, 2002

Last updated on Monday, March 3, 2003