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What is a Price Taker?

A price taker is a market participant who accepts prevailing prices without influencing them. Imagine a small fish in a vast ocean, unable to sway the current. They trade goods or stocks at market rates, dictated by supply and demand forces larger than themselves. How does this position affect their market strategy? Join us as we examine the impact on individual players.
Mary McMahon
Mary McMahon
Mary McMahon
Mary McMahon

A price taker is a person or company with limited market power, who cannot affect prices on the open market with business activities because these activities are too small to register. Price takers must work with the available going rate; this in contrast with price makers, which are people and institutions with enough clout to impact the market with their financial decisions. In investment communities, movements of price makers are watched closely, as they can affect the value of stock and commodities.

A simple example of a price taker is an individual investor. People who place small orders for securities do not have an impact on their value because the orders are negligible in size. Likewise, companies selling commodities in a very crowded market have little control over their price, as hiking the price up will drive away customers. A T-shirt stand owner trying to sell T-shirts for a price much higher than that of neighboring stands is a price taker, as customers will skip by and purchase shirts at a lower price from other vendors, forcing that person to drop the price or go out of business.

Man climbing a rope
Man climbing a rope

Economists are very interested in the way markets work and the divisions between price makers and price takers. According to some theories, markets tend to push towards efficiency, with prices evening out over time in response to market pressures. These changes in pricing and availability are primarily predicated by the price makers, however, as a price taker cannot make a meaningful change in the market.

A disadvantage of being a price taker is that unfavorable market conditions must be tolerated, as there are no steps available for changing pricing or availability. On the other hand, the risk of loss is much smaller, as deals aren't being made in high volumes. Price makers take more risks with their funds but stand to gain much more as a result of their activities. They are also more closely scrutinized, as questions about wrongdoing become much more serious when huge trades are involved.

It is possible for an individual investor to become a price maker, although this is rare. People with a lot of money or clout in the investment community may be able to drive prices and availability up and down in the financial market with their activities. To move from being a price taker to being a price maker, it is generally necessary to be backed with substantial funds, as well as being generally respected by other investors as a reliable authority.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Learn more...
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Learn more...

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Discussion Comments

anon358916

The real takers are businesses that refuse to pay the people who do all the real work a decent wage so that they will not have to get food stamps and buy their children's school clothes at second hand stores. All so they can buy a new BMW every other year and send their brats to Yale.

This is especially true in so-called right to work states. It's government sponsored employee abuse, where bosses have the legal right to lie to, steal from, cheat and otherwise stick it to their workers, treating them like cattle.

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