Price Leadership

AAA

DEFINITION of 'Price Leadership'

When a firm that is the leader in its sector determines the price of goods or services. Price leadership can leave the leader's rivals with little choice but to follow its lead and match these prices if they are to hold onto their market share. Alternatively, competitors may also choose to lower their prices in the hope of gaining market share as discounters.

INVESTOPEDIA EXPLAINS 'Price Leadership'

Price leadership can be positive when the leader sets prices higher, since its competitors would be justified in ratcheting their prices higher as well, without the threat of losing market share. In fact, higher prices may improve profitability for all firms.


More commonly, undisputed market leaders such as the big-box retailers use their operating efficiencies to relentlessly mark down prices. This forces smaller rivals to lower prices as well in order to retain market share. Since these smaller firms often do not have the same economies of scale as the price leaders, this attempt to match the leader's prices may lead to mounting losses over a prolonged period, to the point where they may be forced to eventually close their doors.

RELATED TERMS
  1. Predatory Pricing

    The act of setting prices low in an attempt to eliminate the ...
  2. Price War

    When companies continuously lower prices to undercut the competition. ...
  3. Price Fixing

    Establishing the price of a product or service, rather than allowing ...
  4. Cartel

    An organization created from a formal agreement between a group ...
  5. Oligopoly

    A situation in which a particular market is controlled by a small ...
  6. Online-To-Offline Commerce

    A business strategy that draws potential customers from online ...
RELATED FAQS
  1. Does perfect competition exist in the real world?

    First, let's review what economic factors must be present in an industry with perfect competition: 1. All firms sell an ... Read Full Answer >>
  2. Who are Nordstrom's (JWN) main competitors?

    Nordstrom (JWN) is a high-end retail sales department store offering fashion, shoes and accessories for men, women and children. ... Read Full Answer >>
  3. Who are Family Dollar's (FDO) main competitors?

    North Carolina-based Family Dollar (FDO) is one of the biggest discount retailers in North America. Competitors include companies ... Read Full Answer >>
  4. Who are Target's (TGT) main competitors?

    Target (TGT) is a discount retailer, which means that it generates revenue by offering competitively priced consumer goods. ... Read Full Answer >>
  5. What are the differences between a bond's yield to maturity and the spot rate?

    One should expect income when buying stocks in the consumer packaged goods sector. This sector is considered a defensive ... Read Full Answer >>
  6. How does revolving credit differ from a general line of credit?

    The average American consumer earning a median salary of approximately $50,000 a year spends approximately $15,000 to $16, ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Early Monopolies: Conquest And Corruption

    This structure can be very effective, but it is also known for its abuse of power.
  2. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  3. Personal Finance

    A History Of U.S. Monopolies

    These monoliths helped develop the economy and infrastructure at the expense of competition.
  4. Investing

    The Case For Stocks Today

    Last week, U.S. equities advanced with the S&P 500 Index notching new records. Investors are now getting nervous with rate and currency volatility spiking.
  5. Personal Finance

    How Amazon Fresh Works

    Amazon Fresh, a grocery delivery company that operates in parts of Seattle, Los Angeles, New York, and New Jersey, is a new service from Amazon.
  6. Savings

    20 Ways To Pay Less At Costco

    There are plenty of little-known Costco shopping hacks that can save you big bucks at the register, and help you avoid the notorious spending hangover.
  7. Stock Analysis

    Costco, Target or Walmart: Which is the Best Bet?

    These three retailers have all been long-term winners. It that likely to continue? If so, which is the best bet?
  8. Economics

    The Big Chill: What’s Wrong With The U.S. Consumer

    Based on the most recent April data, investors may, once again, be disappointed when the second-quarter gross domestic product (GDP) report comes in.
  9. Personal Finance

    Can Electric Cars Replace Gas Guzzlers?

    High costs and poor battery performance have deterred many from switching to electric cars, which begs the question: can electric cars replace gas guzzlers?
  10. Stock Analysis

    Is There Any Upside Left in Costco?

    Costco's stock has performed exceptionally well over the past five years, but does it need a breather?

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center