What Is a Price Taker?

A price taker is an individual or coꦫmpany that must accept prevailing prices in a market, lacking t🐷he market share to influence market price on its own.

All economic participants are considered to be price takers in a perfectly competitive market, as defined as one in which all companies sell an identical product, there are no 澳洲幸运5官方开奖结果体彩网:barriers to entry or exit, each company has a relatively small market sh꧟are, and all buyers have full information.

In the stock market, individual investors are considered to be price takers, while 澳洲幸运5官方开奖结果体彩网:market makers are those who set the bid and offer in a security. Being a market ♏maker, however, does not mean that they can set any price they want. Market makers are in competition with one another and are constrained by the econom🧜ic laws of the markets like supply and demand.

Understanding Price Takers

In most competi𒆙tive markets, firms are price takers. If firms charge higher than prevailing market prices for their products, consumers will simply purchase from a different lower-cost seller to the extent that these firms all sell identical, substitutable goods or services.

Grain markets are a prime example of a good that is almost identical in quality between its many sellers, so the price of grain is determined by competitive activity in domestic and global markets and 澳洲幸运5官方开奖结果体彩网:commodities exchanges.

In the case of wheat, 澳洲幸运5官方开奖结果体彩网:low-cost producers will have a competitive advantage in that they will be able to drive out high-cost producers and take their market share by o෴ffering progressively lower prices. Technological innovation that lowers the cost of production is part of the process of competition whereby capitalist♏ firms have no choice but to be price takers.

The market for oil is slightly different. While oil ♉is competitively produced as a standardized commodity on a 🧔global market, the industry imposes steep barriers to entry for sellers. This is due to the high capital costs and expertise needed to drill or refine oil, as well as the high bidding price of oil fields.

As a result, there are relatively few oil-producing firms compared to wheat farmers, and so most consumers of gasoline and other petroleum-products are the price takers—they have few producers to choose from outside a handful of global companies. The Organization of 𒐪Petroleum Exporting Countries (OPEC) also has great power to move prices up and down through controls on output. This underscores how 💎a consumer is price taking to the extent that he can't or doesn't want to produce the good on his own.

Nevertheless, due t🐎o intense competition and technological innovation am🎶ong these firms, consumers still get oil at low prices.

The nature of an industry or market greatly dictates whether firms and individuals are price takers. For example, most consumers in ret🅘ail markets are, indeed, price takers. For instance, you walk into a clothing store or supermarket and decide what to buy or not, but you are beholden to the price tag attached to a product. You cannot go to your supermarket and competitively bid for a dozen eggs or a box of cereal, you must take the price being offered, or leave it. Online auction sites such as eBay, for example, allow consumers to bid. In such cases, some sellers may become the price takers.

Special Co✨nsiderations: Different Types ✤of Markets

A perfectly competitive market is rare. In most markets, each firm or individual has a varying ability to influence prices, either through sales or purchases. The polar opposites of perfectly competitive markets are 澳洲幸运5官方开奖结果体彩网:monopolies and monopsonies.

A monopoly is a market in which a single seller or a group of sellers controls an overwhelming share of supply, giving the seller or sellers the power to drive up prices on their own. OPEC has a monopoly to a degree. A 澳洲幸运5官方开奖结果体彩网:monopsony is a market in which a single buyer or a group of buyers has a significant-enough share of de🔯ma💦nd to drive prices down.

The Bottom Line

In economics, price takers refer to firms or individuals that must accept prevailing market prices.ꦐ Examples of price takers—and their opposite, price makers—are widely prevalent throughout every sector, from retail shopping to oil and commodities markets. In ꩵa hypothetical market with perfect competition, all participants are price takers.