Answer on Other Management Question for Pragash Thiagarajan
Price leadership can be positive when the leader sets prices higher, since its competitors would be justified in ratcheting their prices higher as well, without the threat of losing market share. In fact, higher prices may improve profitability for all firms.
More commonly, undisputed market leaders such as the big-box retailers usetheir operating efficiencies to relentlessly mark down prices. This forces smaller rivals to lower prices as well in order to retain market share. Since these smaller firms often do not have the same economies of scale as the price leaders, this attempt to match the leader's prices may lead to mounting losses
over a prolonged period, to the point where they may be forced to eventually close their doors.
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