When one company, or a group of companies, has a large enough market share in an industry, it may be able to push the price away from the equilibrium. This is called price leadership. This mainly occurs in industries with strong barriers to entry, for example the need for a large amount of capital to compete, where advanced technologies are required, or the government elects to only allow certain companies to control the market.
While in some cases the barriers to entry make it impossible for other companies to enter the market at all, in most cases, it means that smaller firms must accept the prices the price leader has chosen.
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What are the types of price leadership?
There are three main models of price leadership:
- collusive
