A theory of conscious parallelism

In this paper the 'rationality' of conscious parallelism is studied within 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 will result in a unique solution to the oligopoly problem that is based on firms' need to have consistent expectations that subsequently generate collusive behaviour. This model can then be used to more precisely define the conditions that facilitate or limit oligopolistic coordination, as found in the traditional industrial organization literature.