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Price Leadership

Economics notes

Price Leadership

➡️ Predatory pricing is a pricing strategy used by firms to gain market share by temporarily setting prices below the cost of production.
➡️ This strategy is used to drive competitors out of the market, allowing the predatory firm to raise prices and reap higher profits.
➡️ Predatory pricing is illegal in many countries, as it is seen as a form of anti-competitive behavior.

What is price leadership in economics?

Price leadership is a situation where a dominant firm in an industry sets the price for a particular product or service, and other firms in the industry follow suit. The dominant firm is usually the largest or most influential in the industry, and its pricing decisions are seen as a signal to other firms.

What are the advantages of price leadership for the dominant firm?

Price leadership can give the dominant firm a competitive advantage by allowing it to set prices that are profitable for the industry as a whole. This can help to stabilize prices and reduce price competition, which can be beneficial for all firms in the industry. Additionally, price leadership can help the dominant firm to maintain its market share and prevent new entrants from entering the market.

What are the disadvantages of price leadership for consumers?

Price leadership can lead to higher prices for consumers, as other firms in the industry may follow the dominant firm's lead and raise their prices as well. This can reduce consumer choice and lead to less competition in the market. Additionally, price leadership can lead to collusion among firms in the industry, which can be harmful to consumers and violate antitrust laws.

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