Posted in Finance, Accounting and Economics Terms, Total Reads: 389
A price taker is an individual or a company that does not have control to direct price of a product or service. An individual investor or a company who is not influential enough to affect the price of an item. Price-taker is an individual who’s purchasing or selling are expected to have no effect on market prices. It can also be a firm that can change its rate of production or sales without affecting the market significantly.
In the trading universe, the price taker is a trader or investor who’s buying or selling transaction do not affect the price of the stock or security, they are often constrained by larger demand and supply requirements. A price taker is the opposite of a price maker.
In case of manufacturers, they have a horizontal demand curve so they maximize their profit by keeping the price equal to their marginal cost. As they don’t have control over the prices they have to keep certain production level to maintain market share even though it is not profitable. They are not generally industry leaders. Investors can differentiate between price taker and price maker and invest in price makers for steady profits. An individual consumer of products is also assumed to be price taker as he/she does not have control over the pricing and has to buy the product at market price.