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Price Leaders and their role in the Market:
Price Leaders are firms that hold the leading position in the market, that is, they have such huge influence on the market that they can determine the price of a product, and rival firms will follow suit to match that price. Price leaders are also known as Market leaders since the other firms have no choice other than to follow its lead.
When price leaders increase their prices, the other rival firms can also increase their prices and justify it. This way, the whole market price goes up and every firm in the market earns profit.
In the same way, if the price leader reduces its price, other firms would be forced to do the same to survive the market competition. Since minor firms lack the economy of scale unlike the market leader, it is possible that they will incur losses in the long run and will eventually be compelled to shut down their business.
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