Question

During the 1990s, one of the dominant firms in the U.S. cigarette industry would raise prices once or twice a year by about 50 cents per carton. Other firms in the industry typically raised their prices by the same amount. This is an example of:

Answer 1

Answer:

This is an example of price leadership.

Explanation:

Price leadership is a type of practice where a firm, most likely a dominant one, sets the price and other firms follow it. It is commonly seen in an oligopoly market.  

In an oligopoly market, there are a few firms, these firms are interdependent. A price change by one firm affects its rivals.

Price leadership is of different types.

• Barometric
• Collusive
• Dominant

So when a dominant firm changes its price, the followers have to follow it if we they want to retain their market share.