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Definition: Barometric Price Leadership
This is one of the three types of price leadership model (other two are Dominant Firm Model and Collusive Model) where a company sets the price of products in its market segment or industry and other companies in the same industry follow the suit. The term is so named because one company acts as the “barometer” or the benchmark of market prices. The barometer company, being adept and skillful at identifying the change in the market conditions or consumer demands or production costing is in a better position to determine the prices.
This agility to identify market trends gives them the price leadership in the market. Other companies or competitors find it beneficial to simply follow the leader than to discover the main sources responsible for market shift. Since the barometric leader is an independent player in the market and has little power on others to impose the pricing decisions in the industry, the companies may not follow the suit and thus his leadership may be short-lived.
In Dominant firm price leadership, the firm with the largest market share or monopoly sets the price of the product and other small firms act as the price-takers.
In Collusive model, few big firms of the oligopoly market come to an agreement and fix the prices of the products in their industry. Other small firms follow the suit.