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Question
Price leadership is a form of ____________.
Price leadership is a form of ____________.
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Solution
The correct option is A tacit collusion
In an oligopolistic market structure, if one of the firms is a market leader the smaller controlling firms may choose a follow the leader strategy to maintain profitability and market share. It forms an informal understanding between the major players and they indulge in a tacit collusive market strategy. Since all the firms in the oligopoly do not play an active role in determining the strategy it cannot be called a cartel.
In an oligopolistic market structure, if one of the firms is a market leader the smaller controlling firms may choose a follow the leader strategy to maintain profitability and market share. It forms an informal understanding between the major players and they indulge in a tacit collusive market strategy. Since all the firms in the oligopoly do not play an active role in determining the strategy it cannot be called a cartel.
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