Understanding the “price umbrella”

The umbrella pricing business definition:

A market situation in which several large firms dominate an industry and maintain relatively high prices such that smaller firms with higher costs are also able to operate profitably.

It is often asserted that a dominant firm provides a pricing umbrella for smaller firms; that is, as long as competing firms price at or below the level of the dominant firm, they will be able to find buyers. Obviously, if their products are inferior, they will have to set their prices substantially below the dominant firm’s.

Many a firm has lost or made money by simply not understanding, or understanding this concept.


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