Definition: is a firm that has the power to influence the market price. By controlling the market price, the leading firm can control the speed of market expansion and the entry of new firms. The dominant firm is aware of the threat of invasion associated with the price that it assigns to its product today. However, the dominant firm tends to maximize profits, so setting too low a price, while reducing the threat of intrusion; it also lowers its own profits.
Dominant firm in a sentence:
The dominant firm should take into account the relationship between price and quantity along the entire market demand curve, and the results of its impact on the behavior of the competitive complement.
Since a dominant firm is confronted with a demand curve, it maximizes its profits by choosing the output volume at which the corresponding marginal revenue curve crosses its marginal cost curve.
Synonyms and related words: leading firm, monopoly, pricing