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Price takers and price searchers

In a price-taker market, the firms all produce identical products (for example, wheat, eggs, or regular unleaded gasoline), and each seller is small relative to the total market. Thus, the output of analyzing firm has little or no effect on the market price. Each firm can sell all its output at the market price, but cannot sell any of its output at a higher price. When a firm is a price taker, there is no pricing decision to be made. Price takers try to choose the output level that will maximize profit. given their costs and the price determined by the market.
Price takers, like all other profit-seeking firms, cannot thrive (or even survive) in a competitive environment unless they are sensitive to cost. However, price-taker markets and price-searcher markets have differing degrees of competition, differing ease of entry, and perhaps differing scale economies, too. To compete, each firm has to provide a high level of delivered benefits per dollar, compared to what consumers can find else- where. No firm can force consumers to purchase its product, and all products have many substitutes. Successful firms are those that stay ahead of competitors and potential competitors.
In the real world, most firms are not price takers. In most cases, firms that lower their prices are able to attract additional customer. Correspondingly, firms are usually able to increase their prices, at least a little, without losing all their customers. For example, if Nike increased the price of its athletic shoes by 10 percent, the number of shoes sold would decline, but it would not fall to zero. Firms like Nike are not price takers. They are price searchers: they choose the price that they will charge for their product, but the quantity that they are able to sell is very much related to that price. To maximize their profits, price searchers must not only decide how much to produce, but also what price to charge. We will examine markets in which the firms are price searchers in the following posts. If most real-world firms are price searchers, not price takers, why take the time to analyze the latter? There are several reasons. First, even though most firms are not price takers, there are a number of important markets, particularly in agriculture, in which the firms do essentially take the price determined in the market. Second, the price-taker model helps clarify the relationship between the decision making of individual firms and the market supply in both price-taker and price-searcher markets. Finally, and perhaps most important, the study of markets in which firms are price takers enhances our knowledge of competition as a dynamic process. Understanding how the competitive process works when firms are price takers will also contribute to our understanding of the process as it applies to many price searchers.
Historically, the term    competition has been used to refer to markets in which firms are price takers. However, these markets are increasingly referred to as “price-taker markets” because this expression is more descriptive. Furthermore, this label avoids the implication that competitive forces are necessarily less pure or less intense in price- searcher markets. Often this is not the case. Many price searchers use a broad array of competitive weapons for example, quality of product, style, convenient location, advertising, and price – all in an effort to attract consumers.



The availability of adequate energy, water, and waste water treatment at a reasonable price is basic in attracting new industries. Availability of electricity or natural gas at the industrial site, utility rates, anticipated future supplies, and policies for line extensions, and fire protection and insurance rates are all considerations for managers seeking new plant locations.
Water is the most widely used natural resource in industry. It may be incorporated into the product, used in processing, in steam generation, in cooling, and in normal sanitary uses. The main concerns are with the quantity and quality of the water supply. In recent years, strict federal and state standards relating to environmental consequences of water use and waste water disposal have had an effect on industrial water considerations. For instance, an increasing number of industries that normally consider treating their own waste water are looking for locations where public sewage disposal systems are adequate or can be constructed to meet their needs. Or, they seek an open space location where they will be responsible only for their own waste water treatment. The attractiveness of a community can be greatly enhanced by providing industry adequate water supplies and effective waste water treatment.

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