What Is a Price Maker?

A price maker is a company that can dictate the price it charges for its goods because there are no perfect substitutes. These are generally 澳洲幸运5官方开奖结果体彩网:monopolies or companies that produce goods or services that differ from what competitors offer.

The price maker is a profit maximizer because it will increase output only as long as its 澳洲幸运5官方开奖结果体彩网:marginal revenue is greater than its 澳洲幸运5官方开奖结果体彩网:marginal cost—in other words, as long as it is producing a profit.

Understanding the Price Maker

In a free enterprise system, prices are greatly determined by supply and demand. Buyers and sellers exert influence over prices, resulting in a state of 澳洲幸运5官方开奖结果体彩网:equilibrium. However, in a monopolistic environment, one company has absolute control over the supply released into the market, allowing that business to dictate prices.

Without competition, the seller may keep prices artificially high without concern for price competition f🎉rom another provider. This scenario typically puts consumers at a disadvantage because they have no way to seek cheaper alternatives.

Types of Price Makers

In a multiplant monopoly, firms with many production plants and different marginal cost func💝tions choose the individual output level for each plant.

In a 澳洲幸运5官方开奖结果体彩网:bilateral monopoly, there is a single buyer, or 澳洲幸运5官方开奖结果体彩网:monopsony, and a single seller. The outcome of a bilateral monopoly depends on which party has greater negotiatiꦕon power: One party may have all the power, both may find an intermediate solution, or they may perform vertical integratio🔯n.

In a multiproduct monopoly, rather than selling one product, the monopoly sells several. The company must take into account how changes in the price of one of its prod🔴ucts affect the rest of its products.

In a 澳洲幸运5官方开奖结果体彩网:discriminating monopoly, firms may want to charge different prices to different consumers, depending on their willingness to pay. The level of discrimination has various degrees. At the first level, perfect discrimination, the monopolist sets the highest price that each consumer is willing to pay. At the second level, nonlinear price fixing, the price depends on the amount bought by the consumer. At the third level, market segmentation, there are several differentiated consumer groups where the firm applies different prices, such as student discounts.

In a 澳洲幸运5官方开奖结果体彩网:natural monopoly, because of cost-technological factors, it is more efficient to have one firm responsible for all the production because long-term costs are lower. This is known as subadditivity.

Regulatory Bodies and Antitrust Laws

Government agencies such as the 澳洲幸运5官方开奖结果体彩网:Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) enforce federal 澳洲幸运5官方开奖结果体彩网:antitrust laws and promote free trade.

Any proposed corporate merger must first meet the regulatory bodies’ approval. Proposed mergers that could potentially stifle competition and create an unfair marketplace are typically rejected. The 澳洲幸运5官方开奖结果体彩网:Herfindahl-Hirschman Index, a calculation measuring the degree of concentration in a given market, is one tool that regulators use when making decisions about a potential merger.