Price leadership
As a price leadership ( English price leadership ) is a competitive strategy called, in which the changes in the price of products or services largely from a single supplier are determined, on the pricing policy , the other providers adapt .
history
In 1980, the US economist Michael E. Porter brought a highly regarded book onto the market, which triggered a wave of reactions in the specialist literature and was widely accepted in practice. According to this, there are three competitive strategies, namely the differentiation strategy ( quality leadership ), cost and price leadership and the niche strategy ("focus"). According to Porter, a company can only position itself successfully in competition with other companies if it pursues one of these strategies . Passing on achieved cost advantagesto customers leads to price leadership. It aims to keep its own price level below that of the most important competitors.
Emergence
In order for a provider to achieve price leadership, it must have market power through a corresponding market share or a cost advantage , so price leadership only occurs in oligopolistic markets. One possible market situation is the partial monopoly , a market with one large and many small providers. The big company has a certain amount of leeway in setting its prices. The smaller companies will base their price decisions on the market leader . In a real oligopoly with several larger companies, that company can often play the role of price leader. B. Market share, cost structure and financial reserves would have the best chance of surviving ruinous competition (price war). If such a company sets an offer price for its own products, competitors will hesitate to offer their products at a significantly higher price because they would then have sales difficulties. You would also avoid significantly undercutting the leading company's price, otherwise a price war could ensue that the competitor would likely lose. Such price leadership is not necessarily stable; the role of price leader may be transferred to another company or disappear entirely. It is also possible that individual providers can escape the general price movement through a special strategic orientation (e.g. cheap strategy , niche strategy ).
features
Price leadership is not necessarily expressed in the fact that the prices on a market are similar for all providers, since differences in quality and the like can allow a differentiated price structure. Often, however, one observes almost synchronous price changes: If the leading company makes a price change up or down, the competitors soon follow suit. Price leadership is based on tacit collusion or economic pressure, but not on agreement or coercion.
It is to be distinguished from cartels , in which price agreements are made explicitly, and monopolies , in which a company is the only provider to be completely free in its pricing. Nevertheless, there can be smooth transitions to these two types of market.
species
The form of price leadership described above, which is based on economic pressure (dominant market share or cost advantage of a company), is called dominant price leadership . However, barometric price leadership is also possible, in which a certain company takes over the task of price leader through tradition, trust or silent agreement, whereby in the latter case (agreement) the boundary to the cartel becomes blurred. Price leadership can also rotate between companies (e.g. in the fuel market). The actions of the price leaders and followers are determined by avoiding price wars in order to achieve adequate profits together. Such a market system can be brought down by the entry of new providers. Opening up markets more to start-ups and foreign suppliers can make barometric price leadership difficult and lower prices for consumers.
“Price leadership” has a different meaning as an advertising term . Here suppliers sometimes claim "price leadership" as an expression of the claim to be the supplier with the cheapest range .
literature
- Susanne Wied-Nebbeling: market and price theory . Pp. 231-237.