In dominant firm price leadership, one firm establishes itself as the leader because of its larger size, customer loyalty, or lower cost structure in relation to other competing firms. The leader may then act as if it were a monopolist in its segment of the market. What is the incentive for followers to accept the established price? In some cases it may be fear of cut throat retaliation from a low-cost dominant firm that keeps smaller firms from attempting to undercut the prevailing price. In other cases, following a price leader may be viewed as simply as convenience.
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