Going Rate Pricing

In going-rate pricing, the firm bases its price largely on competitors' prices. The firm might charge the same, more, or less than its major competitor(s) charges. In oligopolistic industries that sell a commodity such as steel, paper, or fertilizer, firms normally charge the same price. The smaller firms "follow the leader," changing their prices when the market leader's prices change rather than when their own demand or costs change. Some firms may charge a slight premium or slight discount, but they typically preserve the amount of difference. When costs are difficult to measure or competitive response is uncertain, firms feel that the going price represents a good solution, since it seems to reflect the industry's collective wisdom as to the price that will yield a fair return and not jeopardize industrial harmony.

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