• Rambi@lemm.ee
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    1 year ago

    It’s called price leadership and it is an extremely well established phenomena in economics.

      • PersnickityPenguin@lemm.ee
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        1 year ago

        That is written like a true economist.

        Here’s what it looks like from a business perspective: if I am a meat packing company, I need to go to the farmers and buy the pork that is going to be processed by my factory. The pig farmer says I will sell you my pork for four dollars a pound. I asked for him to sell at two dollars a pound, but he simply refuses and sells to somebody who paid is willing to pay a higher price.

        Now, I can do two things to lower the price:

        I can collude with all of the other meat packing companies and refused to buy pork at four dollars a pound, and we set our willing price at two dollars a pound. If we get enough other companies to collude together as a cartel, then we can force the prices down. This is generally illegal.

        The second option is through consolidation: first, I get enough money to buy up all of the other meat packing companies. Then when I go back to the pig farmers, they only have one buyer to sell to, which is my business. So I get to set the prices, which will be at whatever price I stipulate. Walmart is famous for doing this.