Conscious parallelism is a term used in competition law to describe pricing strategies among competitors in an oligopoly that occurs without an actual agreement between the players.[1] Instead, one competitor will take the lead in raising or lowering prices. The others will then follow suit, raising or lowering their prices by the same amount, with the understanding that greater profits result.
This practice can be harmful to consumers who, if the market power of the firm is used, can be forced to pay monopoly prices for goods that should be selling for only a little more than the cost of production. Nevertheless, it is very hard to prosecute because it may occur without any collusion between the competitors. Courts have held that no violation of the antitrust laws occurs where firms independently raise or lower prices, but that a violation can be shown when "plus factors" occur, such as firms being motivated to collude and taking actions against their own economic interests.[2]
The term has also been used to describe industry-wide assumption of terms other than price. For example, all competitors in an industry might make only long-term leases of products such as heavy machinery, leaving lessors with no opportunity to make a short-term lease of that product from any competitor.
See also
- Price leadership
- Predatory pricing
- Laissez-faire Capitalism
References
- ^ "Oligopolies, Conscious Parallelism and Concertatio" (PDF). Archived from the original (PDF) on 2007-07-08. Retrieved 2012-02-26.
- ^ Kevin Scott Marshall, Stephen H. Kalos, The Economics of Antitrust Injury and Firm-specific Damages (2008), p. 228.