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How Price Leaders Enforce their Leadership

How would a low-cost price leader enforce its leadership through implied threats to a rival? Provide at least one example of such a strategy.

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Price leadership generally only occurs in some form of oligarchic market. It only works when there are a few firms that dominate the field. The actions of one automatically have an impact on the others. The market must be dominated by a few sellers, usually of a good that is basically standardized (partially because there is limited cost cutting measures in things like steel or aluminum).

The criterion for a price leader is normally the firm that has, for a long period of time, controlled a disproportionate share of the market. The leader is very well known in the field and often is the 'default' provider of the good. In many cases, the followers in the field assume that the leader has an inside track on the market's future, and hence, following the leader's pricing strategy makes sense.

In a sense, the market here still prevails, though in a limited way. The leader can alter the ...

Solution Summary

The solution gives a break-down of the different was low-cost leaders in a market can assert themselves over the competition. 570 words with references.