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R I T I K A R A J G O PA L J O B I N M AT H E W S SURAJ KARRA A D I T YA K E R K A R
S H I VA N A N D K O T I A N
OBJECTIVES :
By the end of this presentation we should be able to learn :
1. 2.
What is the Price Leadership Model? Why has the Price Leadership Model evolved?
3.
4. 5.
Technical reasons
Size, Efficiency, Economies of Scale, Firms Ability to forecast market conditions accurately
Tacit agreement between the firms
Occurs in case of a low cost firm which may or may not have significant market power. The low-cost firm responds more quickly than its rivals to changing costs and demand conditions. In such conditions, the rival firms follow suit. The rival firms may even decrease its prices further, depending on their future assessments.
OP3= Unit cost for rival firms OQ1= Selling quantity at price OP3
vs
Behavior :
(a) : Market Demand-Supply curve of Small firm D Dm = Market demand Curve P1SS = Supply Curve of Small Firms
(b) : Market Demand curve of Dominant firm P3DD = Demand Curve of Dominant Firm P3 MPD = MR of Dominant Firm
State Bank of India has always been the dominant firm in the Indian market. SBI fixes the interest rate and the other banks soon follow the pricing.
Number of Large firms is more than the number of Small firms. A firm has a better knowledge of prevailing market scenario. The firm has better capability to predict the future. The firm initiates well publicized changes in price. The rival firms accept the change in price in order to retain its market share.
Summing up
All the Price Leadership models are controlled by strict Anti Monopoly laws enforced by the Government. These strict measures restrict the numerous companies from illegal trade practices.
Thank You