Price Taker: 3 Examples of Price-Taker Models

A price takers is a person or company who must accept the prevailing market price of goods or services. A market structure with perfect competition would guarantee price-taking across the board. For example, if all competing farms are equidistant from a grocery store and sell identical products, each farm does not have the ability or advantage to make its own price.

While price takers must accept price changes outside of their control, price makers have greater market power. Price makers can set higher prices for their goods because the given market is often monopolistic. An oligopoly, where a small number of sellers or competitive firms dominate an industry could easily become a price-making structure.

Market conditions can change, and product differentiation and elasticity of demand can turn price takers into price makers. The equilibrium price may shift when supply is low and individual businesses can increase their lower prices because consumers will have a more challenging time procuring goods.

Companies selling perfect substitutes will often exist in a price-taking market. Consider the following examples or price-taking models:

1. 1. Gas: Broadly speaking, gasoline is all the same. There are no close substitutes, so the price is set by the supply and demand of the market.
2. 2. Food: Agriculture is another example of a price-taking model. Stock ingredients such as wheat and produce are subject to consumer and seller demand.
3. 3. Housing: Housing, including rents and homeownership, is another price-taking model set by consumer needs.

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