Shmoop Finance
Make Moolah, Not War
Word of the day: Price Maker
There are two types of firms in this world: price makers and price takers.
Price takers are firms that have to just accept the market price, because competition is fierce. If you have a hot cocoa stand in Russia and try to sell hot cocoa for $3 instead of the market price of $2, you’re not going to get any customers. You have to just take the market price of $2.
Price makers are the opposite: they pick the prices, and the customers come to them. How? Well, price markers have some control over things in their market. They might be a monopoly, the only one selling what they’ve got. Or a colluding oligopoly...like if you and all of the other hot cocoa stands colluded together to make every cup of cocoa $3.
More commonly, you can find price makers in the free-ish market when products are differentiated. For instance, Apple is a price maker because they’ve differentiated their Apple products. Sure, there are other computers and smartphones out there, but when you buy an Apple product, you’re not just buying the object for functional use. You’re also getting a sleek machine with the attached social status, which people are willing to pay more for. Basically, Apple made its own little monopoly by differentiating its products, which makes them price makers rather than price takers.
Sometimes you just have to grab prices by the...apples. And, uh...make apple juice.