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Market Sharing and Price Leadership

Author

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  • Farm, Ante

    (Swedish Institute for Social Research, Stockholm University)

Abstract

This paper proposes an alternative to the traditional model of supply and demand in markets where consumers take prices as given. Within the framework of “no side payments and partial preplay communication” firms are assumed to decide non-cooperatively on production and marketing while the market price is set by a competitive price leader, i.e. a firm preferring the lowest market price. Predictions include excess supply and a revenuemaximizing market price in markets where production precedes sales. In markets where sales precede production competitive price leadership predicts monopoly pricing but not necessarily monopoly profits if firms are “sufficiently similar”, while the presence of firms with high costs or low capacities will make it possible for the price leader, in some circumstances, to increase its market share and also its profits by reducing its price. And the threat of costly competition for market shares may reduce the market price even for identical firms.

Suggested Citation

  • Farm, Ante, 2009. "Market Sharing and Price Leadership," Working Paper Series 3/2009, Stockholm University, Swedish Institute for Social Research.
    • Handle: RePEc:hhs:sofiwp:2009_003
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    File URL: http://www.sofi.su.se/content/1/c6/03/09/74/WP09no3.pdf
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    References listed on IDEAS

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    1. King, Robert P. & Hand, Michael S. & DiGiacomo, Gigi & Clancy, Kate & Gomez, Miguel I. & Hardesty, Shermain D. & Lev, Larry & McLaughlin, Edward W., 2010. "Comparing the Structure, Size, and Performance of Local and Mainstream Food Supply Chains," Economic Research Report 246989, United States Department of Agriculture, Economic Research Service.

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    More about this item

    Keywords

    Pricing; oligopoly; price leadership; market sharing;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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