PRICE LEADERSHIP UNDER OLIGOPOLY
In an oligopolistic situation. there arc more than two or a few sellers who arc able to exercise monopolistic influence. III such a market situation. we generally find that there exists what is called the ‘price leadership’. Under price leadership. one finn a surnes the role of a price leader and fixes the price of the product for the entire industry. The other firm in the industry simply follow the price leader and accept the price fixed by him and adjust their output to this price. The price leader is generally a very large or a dominant firm or a firm with the lowest cost of production. It often happens that price leadership is established as a result of price war in which one firm emerges as the winner. Thus. we find that in an oligopolistic market situation. it is very rare that prices are set independently and there is usually some understanding among the oligopolist is operating in the industry. This understanding or agreement may be either-tacit or formal. In the case of a formal agreement. the oligopolist agree to observe some rules of conduct as regards price. output. etc. They may have a written agreement which may also provide Ior violation of agreement.However, generally the agreement is more tacit than formal. The tacit agreement implies that there arc no consultations or discussion: the oligopolists have only an understanding among themselves and follow a uniform and agreed policy with regard to price. output. etc. It is this tacit agreement which usually a feature of price leadership. That is, under price leadership there is no formal agreement or selling up of an agency to control and regulate the activities of the firms in the industry. Some times. however, price leadership may emerge from a formal agreement among the rival firms ill which a leader is chosen whom the other firms in the industry agree to follow in selling thc price.  Firm, A dominant firm is one which has a large capacity to produce and sell in the market. In oligopoly such a practice is possible. It is a very efficient and efi live firm as such can dominate the market. it can produce the goods at possible lowest cost then thc other small firms exists in the market pluitatiH’ nr  In this case. one hig finn comes tll e,tahli,h it’ supremacy in the market hy following aggre price policies, This firm compels other finns In tollow it and accept the price fixed by it. In cave the other  show any independence. this firm thrc tcnv them and coerces them 10 follow its leadership with the result that the price set by this firm comes to be accepted willingly or unwillingly