Identifying price-leadership structures in oligopoly

Abstract

Oligopoly can give rise to complex patterns of price interaction and adjustment. While oligopolistic firms may divide into price leaders and price followers, it is conceivable that some may take on dual roles, being a leader to one group but a follower to a different group in a hierarchical structure. The contribution of this article is to show how such dual relationships are possible in theory along with providing an empirical method to help identify price-leadership structures in n-firm oligopoly. As an illustration, we apply the method to British supermarkets and find a three-tier leader-follower structure.