Conscious Parallelism by Fixed Relative Prices

This paper is about conscious parallelism in a duopoly with differentiated products. Conscious parallelism is modelled by a "policy of fixed relative prices" (frp) i. e. starting from a competitive equilibrium both duopolists vary prices by the same percentage. This price increasing continues until one of the suppliers does not want to realize any further common price increases. Such a simple and symmetric adjustment process reaches a restpoint, the frp-equilibrium, that is characterized by remarkable properties: (1) in symmetric duopolies the frp-equilibrium reaches a first best solution (maximum of aggregate profits); (2) in stark contrast to "usual" collusive equilibria frp-equilibria are stable with regard to asymmetries in the underlying duopoly model; (3) the model offers a unique approach to duopolies with symmetric and asymmetric market structures. Finally, it is argued that conscious parallelism by fixed relative prices can hardly be detected by antitrust authorities and that it meets widely accepted characteristics of "fair behavior".