Price leadership

From Academic Kids

Price leadership is an observation made of oligopic business behavior in which one company, usually the dominant competitor among several leads the way in determining prices, the others soon following.

Classical economic theory holds that price stability is ideally attained at a price equal to the incremental cost of producing additional units. Monopolies are able to extract optimum revenue by offering fewer units at a higher cost.

An oligopoly where each firm acts independently tends toward equilibrium at the ideal, but such covert cooperation as price leadership tends toward higher profitability for all, though it is an unstable arrangement.

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