Despite the ten years of economy transformation the coal price formation processes do not seem to be understood and further explantation of their development and depedencies is required. The paper starts with the identification of the Polish coal market structures. 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 market 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 proces and their rational boundaries. It is proved that long-term marginal cost of production constitutes the base for the formation of coal prices. This cost could be estimated on the basic of the average long-term cost or incremental cost. The paper gives some formulas how to estimate the long-term marginal costs, and recomm the average long-term cost as the base for the coal 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. All the above-mentioned methods could be used both by regulators and market agents. The paper concludes with consideration on the limits for coal prices, which exist in the Polish economy conditions. 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 domestic coal prices.