Examples of Price leadership in the following topics:
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- Price leadership is a form of tacit collusion that oligopolies may use to achieve a monopoly-like market outcome.
- One way in which firms achieve this is price leadership, in which one firm serves as an industry leader and sets prices, while other firms raise and lower their prices to match.
- The fact that a price change by one firm is follwed by similar price changes among other firms doesn't necessarily mean that tacit collusion exists.
- The gas station that first raises its prices, and that the other two follow, is called the price leader.
- Although companies cannot legally communicate to set prices, some accuse certain industries of using price leadership to accomplish the same goal.
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- As a result, price will be higher than the market-clearing price, and output is likely to be lower.
- If oligopolists individually pursued their own self-interest, then they would produce a total quantity greater than the monopoly quantity, and charge a lower price than the monopoly price, thus earning a smaller profit.
- In contrast to price-fixing, price leadership is a type of informal collusion which is generally legal.
- Price leadership, which is also sometimes called parallel pricing, occurs when the dominant competitor publishes its price ahead of other firms in the market, and the other firms then match the announced price.
- The leader will typically set the price to maximize its profits, which may not be the price that maximized other firms' profits.
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- Price discrimination is present in commerce when sellers adjust the price on the same product in order to make the most revenue possible.
- Second degree price discrimination: the price of a good or service varies according to the quantity demanded.
- By using price discrimination, the seller makes more revenue, even off of the price sensitive consumers.
- Premium pricing: uses price discrimination to price products higher than the marginal cost of production.
- Gender based prices: uses price discrimination based on gender.
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- A price ceiling is a price control that limits how high a price can be charged for a good or service.
- A price ceiling is a price control that limits the maximum price that can be charged for a product or service.
- An example of a price ceiling is rent control.
- By setting a maximum price, any market in which the equilibrium price is above the price ceiling is inefficient.
- For a price ceiling to be effective, it must be less than the free-market equilibrium price.
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- Price discrimination occurs when identical goods or services are sold at different prices from the same provider.
- There are three types of price discrimination:
- Methods of price discrimination include:
- Companies increase the price of a good and individuals who are not price sensitive will pay the higher price.
- Gender based prices: in certain markets prices are set based on gender.
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- A binding price floor is a price control that limits how low a price can be charged for a product or service.
- A price floor is a price control that limits how low a price can be charged for a product or service.
- For a price floor to be effective, it must be greater than the free-market equilibrium price.
- An example of a price floor is the federal minimum wage.
- If a price floor is set above the equilibrium price, consumers will demand less and producers will supply more.
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- In a competitive market, price discrimination occurs when identical goods and services are sold at different prices by the same provider.
- In pure price discrimination, the seller will charge the buyer the absolute maximum price that he is willing to pay.
- It is not important that pricing information be restricted, or that the price discriminated groups be unaware that others are being charged different prices:
- By offering coupons, a producer can charge a higher price to price-insensitive customers and provide a discount to price-sensitive individuals.
- Premium pricing: premium products are priced at a level that is well beyond their marginal cost.
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- Binding price floors typically cause excess supply and decreased total economic surplus.
- A price floor will only impact the market if it is greater than the free-market equilibrium price.
- An effective price floor will raise the price of a good, which means that the the consumer surplus will decrease.
- While the effective price floor will also increase the price for producers, any benefit gained from that will be minimized by decreased sales caused by decreased demand from consumers due to the increase in price.
- If a price floor is set above the free-market equilibrium price (as shown where the supply and demand curves intersect), the result will be a surplus of the good in the market.
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- Consumer surplus decreases when price is set above the equilibrium price, but increases to a certain point when price is below the equilibrium price.
- Consumer surplus is defined, in part, by the price of the product.
- A binding price ceiling is one that is lower than the pareto efficient market price.
- When a price floor is set above the equilibrium price, consumers will have to purchase the product at a higher price.
- An increase in the price will reduce consumer surplus, while a decrease in the price will increase consumer surplus.
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- The price elasticity of supply is the measure of the responsiveness of the quantity supplied of a particular good to a change in price.
- The price elasticity of supply (PES) is the measure of the responsiveness of the quantity supplied of a particular good to a change in price (PES = % Change in QS / % Change in Price).
- In this case, the price elasticity of supply determines how sensitive the quantity supplied is to the price of the good.
- There is no change in quantity if prices change.
- An decrease in prices will lead to zero units produced.