Pricing strategy and financial policy

Recent empirical evidence indicates that capital structure changes affect p ricing strategies, In most Eases, prices increase following the implementat ion of a leveraged buyout of a major firm in an industry, with the more lev eraged firm in the industry charging higher prices on average, Notable exce ptions exist, however, when the leverage increasing firm's rival is relativ ely unlevered. The first observation is consistent with a model where firms compete for market share on the basis of price, The second observation car t be explained within the context of a Stackelberg model where the relative ly unlevered rival acts as the Stackelberg price leader.