interfirm conductan element of MARKET CONDUCT that denotes the ways in which firms interact in the market. Two main patterns of behaviour may be identified:
- independent behaviour: each firm formulates its competitive strategy with respect to price, advertising, etc., unilaterally without considering the actions of other firms. This pattern of behaviour is usually associated with markets consisting of a large number of small suppliers, each of which contributes an insignificant proportion of total market supply (see PERFECT COMPETITION; MONOPOLISTIC COMPETITION);
- interdependent behaviour: firms recognize that they are MUTUALLY INTERDEPENDENT (i.e. that their own actions directly affect the position of other firms) and thus they explicitly take into account the likely effects of their own competitive strategies on other firms).
Interdependence is associated with an OLIGOPOLY, where the bulk of market supply is in the hands of a few large firms, often resulting in COLLUSION as a means of coordinating their pricing, production and selling policies.