price leadership final

8/7/2019 Price Leadership Final

1/14

Group 6

Richa Prasad

Sunita Kaur

Souvik Kayal

Sandipan Nag

M S Pratap Reddy


2/14

Definition

Conditions for effective PriceLeadership Model

Forms of Price Leadership Model

Advantages Conclusion


3/14

Price Leadership is-

Situation in which a marketleader sets the price of aproduct or services

and competitors feel compelledto match that price


4/14

Technical reasons

Size, Efficiency(more efficient more innovative) ,Economies of Scale(cheap product better

leader), Firms Ability to forecast marketconditions accurately

Number of firms are small.

Entry to the industry is restricted.

Products are basically , homogeneous.Demand for industry is inelastic or, very low

elasticity exists.

Firms have almost similar cost curves.


5/14

Low Cost Price Leadership

Dominant Price Leadership

Barometric Price Leadership


6/14

Occurs in case of a low cost firm which may ormay not have significant market power.

The low-cost firm responds more quickly thanits rivals to changing costs and demandconditions from experience.

Through innovation in production methods,leading to new techniques of production orbetter organization.

The rival firms may follow suit or evendecrease its prices further, depending on theirfuture assessments.


7/14

Unit A MC1

Cost B AC1

and MC2

Revenue AC2C

AR

MR

O

Q1 Q2 Output per time unitx

P3

P2

P1


8/14

One firm is recognized as the industry leader. Their market share is much higher than sum ofthe market share of all the other firms

Dominant firm sets price with the realization thatthe smaller firms will follow and charge the sameprice

Effects : Rival Firms behave like firms in aperfectly competitive market


9/14

D S

P3

P2

P1 DD

E

y

x

A B

y

x

P3P2

P1

Q MR

DD

MC

PRICE

PRICE&

COST

OUTPUT OUTPUT

P

o


10/14

In Barometric price leadership, the most reliable firm emergesas the best barometer of market conditions. The firm could bethe one with lowest cost of production, leading other firms thefollow the suit.

The firm has better capability to forecast the economic

changes.The firm has a better knowledge of prevailing market scenario.

Number of Large firms is more than the number of Small firms.

The firm initiates well publicized changes in price.


11/14

In 2002 Coca Cola introduced

the 200 ml bottle for Rs 5.

Pepsi followed in just 5 daysto keep their market share

Example :


12/14

Small firms lack sufficient knowledge into the principleof costing. They can utilize the big firms costingdepartment by being price followers

Leads to price stability avoiding price wars to an extent

Price will not be too high during boom periods and nottoo low during recessions (as price leaders take a long

run point of view)


13/14

All the Price Leadership models are controlledby a strict MRTP Act

MRTP Act : Monopoly Restricted Trade PracticesAct (India 1969)

The MRTP Act restricts the firms from misusing

the Price Leadership Model to engage in illegalpractices.


14/14

Thank YouThank You

price leadership final

Documents