Leader pricing may at first glance be a term that seems quite complicated to understand. In the business world, this term is well known. especially by business owners who generally set a price for each product they issue. This one term has an understanding. The term which is related to the price of this product is related to pricing. So you could say this term has an understanding of pricing by companies for a product.
In particular, the pricing of these products initiates a price change. It means the price-fixing is carried out by the businessman and then followed by other suppliers. You may have seen something like this yourself. Price changes that occur in a product are then followed by price changes to other suppliers. This phenomenon is not uncommon in society. It seems to happen so often around us that anyone has experienced it. For those who want to know more about leader pricing, see the explanation below.
Sample of Leader Pricing
Leader pricing can be regarded as a tool for coordinating oligopolistic prices. So this tends to make it possible for many companies to depend on one another. This dependence affects every business or company, especially in obtaining large or high profits. It often happens in a dominant company.
Companies like this have an advantage, including cost advantages. This advantage also makes it look better when compared to other competing businesses or companies. It could be that a dominant company has low production costs so the price of its products tends to be low. On the other hand, it seems that competing companies have higher production costs.
However, because the dominant company gave a lower selling price, the competing companies followed suit. Finally, the selling price given by competing companies is also the same as the dominant company. Competitor companies will do it even though the profits they get will tend to be low. Perhaps the profits he gets are not as big as the profits earned by the dominant company. It is because the low price offered by this dominant company has been accepted by the market.
Leader Pricing Cause
Many things that happen in the business world can lead to pricing by a company. It includes a superior company that then decides to set a price. That is why this kind of company is the cause of leader pricing in the market. Of course, the price set made by a company occurs because of certain factors. Many considerations make a company then increase or decrease product prices. Likewise, with dominant companies that do price fixing.
Ups and downs in prices may occur due to changes in production costs at certain times. It’s not just production costs that can affect the selling price. However, product prices can also be adjusted to market demand. Therefore, many considerations must be considered properly to determine the price of the product. Especially by dominant companies that will raise or possibly lower prices.
However, this leader pricing will also affect other competing companies. Furthermore, there are still many other cause that can lead to leader pricing. This cause might be specific according to its cases.
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Leader Pricing Advantage
The determination of the price carried out by a company aims to earn a profit or profit. Likewise, the dominant company usually sets the price for its new product. Usually, this predetermined price then affects the non-dominant company. Until the non-dominant company applies the same price as the dominant company for its products.
However, the profit may be slightly different in these two types of companies. In general, the dominant company will get a sizable profit from the pricing it does. The same benefits are not obtained by companies that are not dominant. The non-dominant company or the competing company may still make a profit.
Although generally, this profit is not as high as that obtained by the dominant company. However, products that are launched in the community are offered at prices according to the market. It is a common strategy selected by many companies is selling their products. Then there will be many customers both in dominant companies and competing companies. The more products sold, the competitors’ profits may be greater.
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Leader Pricing Application
Leader pricing has happened all around us even though you may not realize it. In reality, product prices that go up are often followed by price increases from other sellers. Likewise, when prices fall, other sellers can also lower the prices of their products. The leading or dominant company seems to be the market leader. Until other companies seem to depend on this dominant company. Including in terms of pricing which was initially initiated by the dominant company first.
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It is similar to a form of cooperation that occurs between many companies or shops. However, this collaboration seems invisible. Moreover, this cooperation is not bound in a tangible form, such as a document. There are no documents that can indicate the cooperation of these many companies. Because each company usually does the same price-fixing secretly. But this leader pricing usually occurs in superior companies that have been trusted by consumers.
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