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Conscious Parallelism and Predatory Pricing in a Contestable Market


  • W. Bentley MacLeod


This paper studies the "rationality" of conscious parallelism and predatory pricing in the context of a dynamic oligopoly model. The doctrine of conscious parallelism is modelled as the outcome of a signalling game in which the rules of response are specified axiomatically. This results in a unique solution based on firms' need to have consistent expectations the subsequently generate collusive behaviour. With free entry and exit, or contestibility, predatory pricing can deter entry. The solution concept used is subgame perfect Nash equilibria. In contrast to the contestable markets theory, not only is conscious parallelism and predatory pricing consistent with rational profit maximization, but this behaviour can also result in long-run positive profits even with costless entry and exit.

Suggested Citation

  • W. Bentley MacLeod, 1983. "Conscious Parallelism and Predatory Pricing in a Contestable Market," Working Papers 541, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:541

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    References listed on IDEAS

    1. Godfrey, Leslie G & McAleer, Michael & McKenzie, Colin R, 1988. "Variable Addition and LaGrange Multiplier Tests for Linear and Logarithmic Regression Models," The Review of Economics and Statistics, MIT Press, vol. 70(3), pages 492-503, August.
    2. Russell Davidson & James G. MacKinnon, 1985. "Testing Linear and Loglinear Regressions against Box-Cox Alternatives," Canadian Journal of Economics, Canadian Economics Association, vol. 18(3), pages 499-517, August.
    3. Michelis, Leo, 1999. "The distributions of the J and Cox non-nested tests in regression models with weakly correlated regressors," Journal of Econometrics, Elsevier, vol. 93(2), pages 369-401, December.
    4. Godfrey, L. G. & Pesaran, M. H., 1983. "Tests of non-nested regression models: Small sample adjustments and Monte Carlo evidence," Journal of Econometrics, Elsevier, vol. 21(1), pages 133-154, January.
    5. Russell Davidson & James MacKinnon, 2002. "Fast Double Bootstrap Tests Of Nonnested Linear Regression Models," Econometric Reviews, Taylor & Francis Journals, vol. 21(4), pages 419-429.
    6. Godfrey, L. G., 1998. "Tests of non-nested regression models some results on small sample behaviour and the bootstrap," Journal of Econometrics, Elsevier, vol. 84(1), pages 59-74, May.
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