Is the seller a price leader (sets new pricing levels in the market), or a price fol-lower (only matches price increases/decreases when the competition does so)?
Is the seller a price leader (sets new pricing levels in the market), or a price fol-
lower (only matches price increases/decreases when the competition does so)?
A seller who is a price leader sets the price in the market, and other firms follow this price. The price leader sets the price according to his own benefits and to survive in the market. The other smaller firms have to follow this price. The firms who follow the price are known as price followers.
In different market structures, the seller's determination as being a price taker or maker is different. For example, in the perfectively competitive market, the firms are price takers. They do not determine the price level at which the market would clear the goods. The firms can be the price leader or price followers. To be the price leader, a firm has to have a major market share and should have a big customer base to influence the price levels in the market.
The price followers are the firms with less market share and depend upon the bigger firm's decisions. To survive in the market, they have to sell the products at a price set by the price leader.
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