# Price Taker: Definition, Perfect Competition, and Examples

![New York Stock Exchange building exterior.](https://www.investopedia.com/thmb/hf-LzOlglgwb3ffy_fNFJdXmOnw=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1773126567-c7b5fd7b8b824fab81241b6ac325091e.jpg)

*— Michael M. Santiago / Getty Images*

> **Definition**
>
> A price taker is an individual or company that must accept the prevailing market prices due to their lack of market share to influence those prices.

## What Is a Price Taker?

A price taker is an entity that accepts prevailing market prices without influence. It's an individual or company that lacks market share to influence prices.

All economic participants are considered price takers in a perfectly competitive market, which is defined as one in which all companies sell an identical product, there are no [barriers to entry](https://www.investopedia.com/terms/b/barrierstoentry.asp) or exit, each company has a relatively small market share, and all buyers have full information.

Grain markets are examples where sellers are price takers, and oil markets are examples where consumers and non-OPEC oil producers are price takers.

Price takers differ from [price makers](https://www.investopedia.com/terms/p/pricemaker.asp), which are companies that can dictate the price they charge for their goods because there are no perfect [substitutes](https://www.investopedia.com/terms/s/substitute.asp). Monopolies and monopsonies are examples of price makers.

### Key Takeaways

*   In perfectly competitive markets, all firms and individuals are price takers due to identical products and lack of barriers to entry.
*   Price takers must accept market prices, lacking the influence to set prices themselves.
*   Airlines and grain markets are examples where consumers or sellers can often be price takers.
*   Technological advances can give low-cost producers an edge, pressuring others to accept market prices.
*   Monopolies and monopsonies are market structures where price setting is more prevalent.

## How Price Takers Operate in Competitive Markets

Firms in competitive markets are typically price takers. If firms charge above market prices, consumers will buy from lower-cost sellers offering similar goods.

Grain markets show how identical products lead to prices set by competition in global markets.

[Low-cost producers](https://www.investopedia.com/terms/l/low-cost-producer.asp) of wheat can outcompete high-cost ones by offering lower prices, gaining market share. 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 oil market operates differently. Oil is a global commodity, but the industry has high barriers for new 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.

Fewer oil producers mean consumers have limited choices, making them price takers. The [Organization of the Petroleum Exporting Countries (OPEC)](https://www.investopedia.com/terms/o/opec.asp) 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.

Despite few producers, competition and technology keep oil prices low for consumers.

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 price takers.

### Price Takers in the Stock Market

In the stock market, individual investors are considered to be price takers, while [market makers](https://www.investopedia.com/terms/m/marketmaker.asp) 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 compete with one another and are constrained by the economic laws of the markets, such as supply and demand.

## Comparing Market Structures: Perfect Competition, Monopolies, and Monopsonies

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](https://www.investopedia.com/ask/answers/032415/whats-difference-between-monopoly-and-monopsony.asp), which are price makers.

A [monopoly](https://www.investopedia.com/terms/m/monopoly.asp) 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](https://www.investopedia.com/terms/m/monopsony.asp) 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 an Example of a Price Taker?

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

A price taker describes individuals or companies that have to accept market prices without influencing them, because they lack market share to do so.

In perfectly competitive markets, all participants are inherently price takers due to identical products and full market transparency. In reality, however, perfectly competitive markets are rare, with few real-world examples existing.

In most consumer scenarios, such as buying airline tickets or groceries, consumers act as price takers. Examples of price takers are widely prevalent throughout every sector, from retail shopping to oil and commodities markets.

Price takers are different from price makers in that the latter have enough market power to set their own prices. This typically occurs only in monopolies and monopsonies.

Despite varying market dynamics, price-taking behavior persists due to competition and the pressures it creates.