A price maker (also called price leader) is an entity that has the ability to influence the price. A price leader is a product that can dictate the price in its market (due to perceived value) (J. Clark, p. 219).
The price maker plays an active role in the market and takes the initiative in most economic decisions. Its behavior on the market has many more aspects than to the price taker's. The price maker is not able to determine the volume of sales. So he has to allow price takers to set the price. The price maker must be timely and properly coordinate his market behavior (T. Scitovsky, p. 245, 247).
Many small businesses are price makers to some extent. this is the case where buyers have difficulty in clearly distinguishing between prices offered by different suppliers (P. Atrill, E. McLaney, p. 156).
Types of price makers
Price makers can be divided into two groups:
- those who, when setting or changing prices, must consider the likely counteract of competitors;
- those who may ignore such considerations.
To distinguish between them we can refer the first as a dependent price maker, and second as an independent (G. Means, W. Samuels, F. Lee, L. Lee, p. 60).
A price maker is not obliged to charge the same price to all consumers and may benefit from charging different prices for the same product.
Price discrimination occurs when a monopolist charges consumers different prices to consumers for the same product for reasons unrelated to production costs.
Types of price discrimination:
- first-degree price discrimination (firm exactly know how much the consumer is willing to pay - an unlikely occurrence);
- second-degree price discrimination (firm sell surpluses at lower prices than previously charged);
- third-degree price discrimination (firm can increase total revenue and profit by charging different prices for the same product in different market segments) (R. Young, p.43).
- Atrill P., McLaney E. (2007), Management Accounting for Decision Makers, Pearson Education
- Clark J., (2006), Dictionary of International Economics Terms, Global Professional Publishi
- Goodwin E., Harris J., Nelson J., Roach B., Torras M. (2015), Principles of Economics in Context, Routledge
- Mahanty A. (2014), Intermediate Microeconomics with Applications, Academic Press
- Means G., Samuels W., Lee F., Lee L. (1994), A Monetary Theory of Employment, M.E. Sharpe
- Scitovsky T. (2013), Welfare & Competition, Routledge
- Young R. (2004), Transport Economics Digital Textbook, Richard Young
- Zugno M., Morales J., Pinson P., Madsen H. (2013), Pool Strategy of a Price-Maker Wind Power Producer, "IEEE Transactions on Power Systems", Volume 28, Issue 3
Author: Katarzyna Sieczkowska