A price maker is a company with a large market share and production capacity that can influence prices in a market. Competitors must match the price to maintain their market share, and governments may create agencies to prevent monopolies.
A price maker is a company that exerts a great deal of influence in a given market, often to the point where it can influence prices moving up or down in that market. Such a position is sometimes called monopolistic competition, since the price maker exercises a degree of influence not enjoyed by other firms competing in the same market. This is in contrast to price takers who typically track the current market pattern price, as they are not in a position to exert sufficient influence to move that price in any direction.
The typical price manufacturer is a company that has a considerably larger market share than any of its competitors. In addition, the company’s production capacity is capable of manufacturing goods in quantities that keep production costs as low as possible, effectively increasing the potential profit for each unit sold. This state of affairs allows the company to examine the current level of supply and demand, identify the unit price that allows the company to earn the maximum return, and effectively set the standard for the entire industry. At best, this unit price is also low enough to prevent competitors from being able to offer lower prices and still make a decent level of profit.
In this case, the price maker sets the price standard for those goods and services, and competitors must, in turn, consider that price to maintain their current market share and stay in business. When a company is unable to at least match that price, the possibility of losing customers and eventually becoming unprofitable increases dramatically. For this reason, it is not uncommon for competitors to monitor the pricing strategies employed by a manufacturer and adapt them to their own purposes when and as much as possible.
To put some limits on a price maker’s ability to monopolize a given market, many governments create agencies that monitor trade issues within their borders. In some cases, a price maker can be prevented from driving prices down to a level that would drive all other competitors out of business and thus leave the maker as a monopoly that controls the entire market. Often, the motivation for restrictions of this type is based on the concepts of allowing consumers to always have choices and also promoting competition which, in turn, encourages research and development of new and better products for consumers to consume.
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