Price Leadership

A firm is a price leader if other firms in the industry tend to follow the leader’s pricing behaviour, whether price increases or price decreases.

Formal agreements between leaders and followers are typically prohibited by the relevant antitrust or competition laws. However, in determining whether an empirical pattern of price announcements by one firm, followed by parallel price movements by the firm’s competitors, does or does not violate the antitrust law can be a complex matter. Such behaviour is often seen as a form of tacit collusion, although it can also be argued that such patterns may reflect nothing more than industry-wide recognition of changes in competitive circumstances that would result in parallel price movements even in the absence of any collusive agreement.

In some industries, notably the airline...