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Price leadership

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Price leadership

Price leadership refers to a market situation where customers perceive that there is a dominant firm; one which other firms in the industry also accept as the leader. As a result this firm can set its own prices. Competitors will tend to follow the pricing strategy and level set by the market leader.

The market leader must have sufficient market share or status for the other firms to accept it as the leader. Economists would argue that this situation is a form of price collusion with prices being set by a single dominant firm. Since the competition in this type of market is skewed in favour of the dominant firm, the consumer may face relatively higher prices than in a more balanced and intensely competitive market.