The study examines price behavior in tight oligopoly. The investigation proceeds from the premise that tacit collusion is the only rational response of firms comprising tight oligopoly. The study's thesis is that collusive conduct in tight oligopoly will reflect one of two general pricing patterns: (1) shared monopoly pricing, or (2) mark-up pricing. A unique empirical test of this dual price hypotheses is developed. The test focuses on the nature of price responses to cost and demand changes as reflected in a price equation that is estimated for each of forty-two four-digit SIC industries. The study's results indicate infrequent, but still notable, instances of shared monopoly pricing. More common is evidence of mark-up pricing, a general category within which demand proved to be significant in roughly half of the industries examined. Theoretical implications of these findings are discussed.
Dolan, Robert C. "Price Behavior in Tight Oligopoly." E.C.R.S.B. 83-2. Robins School of Business White Paper Series. University of Richmond, Richmond, Virginia.