Introduction, 461. — I. The traditional approach to oligopoly market strategy, 462. — II. Competition via self-competing products, 465. — III. Product diversification across industry lines, 460. — IV. Other considerations — summary, 472.

THE literature on industry pricing practices and policies discloses that a distinguishing feature of oligopolistic structures is the emergence of a who characteristically initiates price adjustments upward and downward for the industry. In recognizing the prevalence and significance of this practice and its implications for theoretical analysis and public policy, economists have endeavored to identify the particular types of price leadership which prevail in industrial markets and to determine the extent to which each type might circumvent the forces of competition.' The theoretical treatment of the subject has been limited to a few special cases, and in most instances emphasis has been placed on conditions which make price leadership of some sort inevitable and at the same time identify the price leader. 2 For various reasons the dynamic aspects of the market conditions under which prices set by the leader might or might not be followed by others have not been worked into the theory of price leadership. The seriousness of this omission is evident from the confusions arising when attempts are made to integrate traditional price leadership models with the theory of the market equilibrium process. Moreover, the models appear to be based largely on highly institutionalized structures wherein interfirm price relationships are essentially settled, under which circumstances price leadership emerges as a type of collusion with the ringleader clearly identifiable. Consequently, current models reveal little about the process of price formation and the development of price leadership patterns in unsettled or immature structures. When applied to price behavior in these in-between markets, the weaknesses of the contemporary models begin to appear. Yet, these are the areas with which public policy is intimately concerned. Thus, if the economic implications of price leadership as an effective weapon against price competition in oligopolistic markets be accepted, the specific conditions attending the development and stability of price leadership patterns need to be re-examined. This article will be addressed primarily to this task. We will proceed (i) by identifying a new type of price leadership which takes cognizance of various dynamic factors in price formation, and (2) by appraising the economic significance of this and the traditional price leadership models in the light of empirical evidence of interfirm behavior in an oligopolistic industry (the hardsurface floor covering industry).