Working Paper Series, Swedish Institute for Social Research, Stockholm University
Market Sharing and Price Leadership
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.
Keywords: Pricing; oligopoly; price leadership; market sharing; (follow links to similar papers)
JEL-Codes: L13; (follow links to similar papers)
34 pages, March 12, 2009
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