price leadership

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The setting of the price of a product by a dominant firm in an industry in the knowledge that competitors will follow this lead in order to avoid the high cost of a price war. This practice is often found in oligopolies and has the effect of a cartel. As the price leader is as anxious as the other members of the industry to achieve a stable market, it is in their interest to set the price at a sensible level; a price leader who fails to do so will soon be replaced as leader by another member of the group. Compare price ring.

Subjects: Business and Management.

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