What Is a Bitcoin Exchange? How It Works, Fees, and Example
Key Takeaways · A Bitcoin exchange acts as the intermediary between a seller and a buyer or, to use market jargon, between a "maker" and a "taker." · A Bitcoin ...
takers
Similar to stock and commodity exchanges, online Bitcoin marketplaces usually designate Bitcoin participants as market makers or <anchor>takers</anchor>. A market maker is a trader who always tries to buy and sell at the best ask and bid, and a market taker tries to execute their trades immediately. Takers are more concerned with liquidity and quick trades.
Price Taker: Definition, Perfect Competition, and Examples
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# Price Taker: Definition, Perfect Competition, and Examples

By

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Updated June 07, 2024

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Reviewed byRobert C. Kelly

Robert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital.

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Michael M. Santiago

## What Is a Price Taker?

A price taker is an individual or company that must accept prevailing prices in a market, lacking the 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 barriers to entry or exit, each company has a relatively small market share, and all buyers have full information.

In the stock market, individual investors are considered to be price takers, while 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 economic laws of the markets like supply and demand.

### Key Takeaways

- A price taker is an individual or company that must accept prevailing prices in a market, lacking the market share to influence market price on its own.
- Due to market competition, most producers are also price takers.
- Unlike price takers, price makers are those with enough market and pricing power to dictate prices.
- Only under conditions of monopoly or monopsony do we find price making.

## Understanding Price Takers

In most competitive 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 commodities exchanges.

In the case of wheat, 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 offering 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 Petroleum 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 to intense competition and technological innovation among 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 retail 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 Considerations: 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 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 monopsony is a market in which a single buyer or a group of buyers has a significant-enough share of demand to drive prices down.

## What Is a Price Taker Example?

One of the most evident examples of a price taker is an individual shopping for an airplane ticket. In most cases, consumers can not negotiate airfare with airlines. Rather, ticket prices for all class types are set and controlled by the firms. Flyers can choose either to take those prices, or to not fly at all.

## Is a Price Taker a Buyer or Seller?

Price takers are not necessarily always buyers. Any participant in a market can be a price taker. Let's take a hypothetical regional dairy market for example. In this case, there might be many sellers, who have produced milk and are trying to sell it. However, imagine there was just one buyer for this milk—say, a single large processing facility—within this region. In this case, then the sellers of milk would be price takers.

## What Is a Price Taker Behavior?

Price takers are characterized by an inability to control prices. They do not have leverage or power to negotiate prices. Rather, they must accept the prevailing prices, or not engage in the market at all.

## The Bottom Line

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

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Related Terms

A basket of goods is defined as a constant set of consumer products and services valued on an annual basis and used to calculate the consumer price index.

Pure or perfect competition is an idealized market structure where prices are determined purely by supply and demand. Pure competition is the opposite of a monopoly.

An economic depression is a steep and sustained drop in economic activity featuring high unemployment and negative GDP growth.

The financial sector consists of companies that provide financial services to commercial and retail clients.

The private sector is the part of the economy that is not state-controlled and is run by individuals and companies for profit.

Dollarization takes place when the U.S. dollar is used along with or instead of a country's domestic currency.

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