Economics Monopolistic Competition Questions
In monopolistic competition, there are two types of price leadership:
1. Dominant firm price leadership: This occurs when a large and influential firm in the market sets the price, and other firms in the industry follow suit. The dominant firm typically has a significant market share and sets the price based on its own cost and demand conditions. Other firms adjust their prices accordingly to maintain competitiveness.
2. Barometric price leadership: This type of price leadership occurs when there is no dominant firm in the market. Instead, firms observe and react to price changes made by a leading firm that is considered to be an indicator of market conditions. The leading firm's price changes act as a barometer for the industry, and other firms adjust their prices accordingly to stay in line with market trends.