Study of Dominant Firm's Price Leadership Model

The key to applying price leadership model is that dominant firm can determine its demand function. In this paper, a method for dominant firm to accurately determine its demand function is presented based on the market demand function and cost function of leading firm and following firms. The related calculation formula are given. The conclusion presented in this paper is also tested and verified by two examples. Finally,the relationship between dominant firm's demand curve and market demand curve is analyzed.