The paper concerns pair production instability in active galaxies which emit most of their energy at h..gamma..>100 keV. The authors show that the esub(..gamma..)-e-pair production instability leads to cyclic variations of accretion flow, during which high-energy flares are produced. This mechanism can account for the large amplitude luminosity changes observed in several active galactic nuclei. The same scenario may also be responsible for the short-timescale quasiperiodic variability reported in some proposed galactic black holes. (U.K.).