Explain the behavior of firms in an oligopoly market with a price leader.

Price leadership is the factor associated with a firm that has significant market dominance and control over other firms who are operating under the same market structure. In an oligopoly market, the firms have no choice but to follow the price set by the leader firm to continue to maintain their market share.

If the other firms charge lower prices than the leader firm, the sales of other firms will increase and the leader firm will be forced to reduce the price as well. This will result in a price war and a decline in the profit margin of all the firms.

On the other hand, if other firms do not follow the leader firm and charge higher prices then it will experience a shift in consumer preference causing them to lose the market share. Hence, the firms in an oligopoly market will follow the pricing set by the leader firm. The firms in an oligopoly are engaged in non-price war. Hence, the firms in an oligopoly market structure face a kinked demand curve.