Price Leadership- Meaning, Types and Price-Output Determination Under Low cost Price Leadership and Domanant Firm Price Leadership
Price Leadership Price Leadership: Price leadership is an important form of collusive oligopoly. It takes place when there is only one dominant firm in the industry, which sets the price and others follow it. Sometimes, an agreement may be developed among oligopoly firms of an industry to assign a leadership role to one of them. There is a tacit or formal agreement among the firms to sell the product at a price set by the leader- firm of the industry. If the products are homogeneous, a uniform price is set. In case of differentiated products also prices can be uniform. If there is any change in price, the leader-firm announces from time to time, and the other firms follow him. Price leadership works effectively when the products are homogeneous and all the firms have identical cost curves. There are various types of price leadership. 1- There is the barometric price leadership in which there is no leader-firm bu...