As noted in a recent survey, dominance is a power relation between two agents in which the dominator restricts the actions of the dominated. But the dominant firm of limit price models in quite restricted in its actions toward actual or potential fringe rivals.

The dominant firm has one weapon with which it can affect their decisions: its output level, which influences the price that rivals think, will hold after entry or expansion. From the point of view of the dominant firm, this is not particularly satisfactory. The dominant firm is able to maintain its position, but it does so only by giving up profit, so that fringe firms do not seek a bigger slice of the pie.

There are tactics a dominant firm can employ to influence fringe firm’s costs and beliefs about the way the dominant firm will react to fringe behavior. In this way, a dominant firm can maintain market share and earn a high profit. By studying such tactics, we can understand not only how some dominant firms have been able to maintain their dominant positions over time, but also how they achieved those positions in the first place.

Strategies to Achieve and Maintain Dominance

The notion of strategy as a source of dominance extends the concept of rivalry backward in time to a period during which the structure of the industry is established. During this initial period, firms compete in an attempt to acquire a dominant position. Strategies aimed at achieving a dominant position involve investing resources that secure assets for the firm that cannot be duplicated, at least not without some passage of time and some sunk expenditure by a rival. This commitment of resources places later arrivals at a cost disadvantage Vis – a – Vis the firm. Once a firm achieves a dominant position, it can employ strategic behavior to maintain that position.