Dominant Firm Model
In some markets there is a single firm that controls a dominant share of the market and a group of smaller firms. The dominant firm sets prices which are simply taken by the smaller firms in determining their profit maximizing levels of production. This type of market is practically a monopoly and an attached perfectly competitive market in which price is set by the dominant firm rather than the market. The demand curve for the dominant firm is determined by subtracting the supply curves of all the small firms from the industry demand curve. After estimating its net demand curve (market demand less the supply curve of the small firms) the dominant firm maximizes profits by following the normal p-max rule of producing where marginal revenue equals marginal costs. The small firms maximize profits by acting as PC firms–equating price to marginal costs.
Famous quotes containing the words dominant, firm and/or model:
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—Don Delillo (b. 1926)
“It makes us, or it mars us, think on that,
And fix most firm thy resolution.”
—William Shakespeare (1564–1616)
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—Marguerite Duras (b. 1914)