Price taker

A price taker is a business that sells such commoditized products that it must accept the prevailing market price for its products. For example, a farmer produces wheat, which is a commodity; the farmer can only sell at the prevailing market price.

A price taker situation most commonly arises when there are many competitors, so there are many alternatives available to buyers. This situation can also occur when demand falls within an industry, resulting in lots of production capacity chasing too few customers. In this case, companies are forced to keep their prices low in order to attract orders and fill their available capacity.

The reverse of a price taker is a price maker; this entity sells in such volume or has such differentiated products that it can set prices that customers will accept. A price maker tends to have a significant market share.

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