The paper deals with the problems of coal price formation, from the economic point of view. Despite the ten years of economy transformation the coal price formation processes do not seem to be understood and further explanation of their development and dependencies is required. General macroeconomic factors of price formation are the subject of the first part of the paper. These are functions of prices, general rules and factors affecting price formation, pricing policies and the role of time. General market rules follow, emphasising the notion of market, market structures and industrial organisation factors. The above mentioned factors come from general microeconomics and are not specific for the Polish coal market. Then the structure of the Polish coal market is identified. Two typical structures have been differentiated. The first one, which comprises small consumers, is similar to perfect competition as there are many sellers, there is no limit to enter the market and information on the price is available. The second structure of large consumers is similar to oligopolistic market with few sellers, barriers to entry and limited information on prices. Since the microeconomic theory gives rational prices only in specific cases, sellers and buyers use different methods to determine prices and their rational boundaries. It is proved that long-term marginal cost constitutes the base for the formation of coal prices. This cost could be estimated on the basis of average long-term cost or incremental cost. The paper gives some formulas how to estimate long term marginal costs, and recommends the average long-term cost as the base for the price formation. Buyers use netback method to estimate the maximum of the price they can pay. Additionally parity and two-tier pricing rules are considered. These methods could be used both by regulators and market agents. The paper concludes with some remarks on the boundaries for coal prices, which exist in the Polish eco- nomy. The upper boundaries are import parity and netback prices whereas export parity and long term marginal cost form the lower boundary. Prices of substitutes could also intervene in coal price formation, but their impact is not easy to determine. These boundaries form ranges of rational coal prices.