A price maker is a company that wields a lot of influence in a given market.
A price maker is a company that exerts great influence in a particular market, often to the point of being able to influence the upward or downward movement of prices in that market. Such a position is sometimes called monopolistic competition, since the price setter has a degree of influence not enjoyed by other firms competing in the same market. This is in contrast to price takers who typically follow the current standard market price as they are not in a position to exert enough influence to move that price in any direction.
The typical price maker is a company that has considerably more market share than any of its competitors. In addition, the company’s production capacity is such that it can manufacture goods in quantities that allow it to keep production costs as low as possible, effectively increasing the potential profit on 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 get the most out of it, and effectively set the standard for the entire industry. At best, that unit price is also low enough to prevent competitors from offering lower prices and still making a decent level of profit.
When that is the case, the price maker sets the standard for pricing those goods and services, and competitors must, in turn, consider that price in order to maintain their current market share and stay in the market. When a business can’t at least match that price, the chance of losing customers and eventually becoming unprofitable increases dramatically. For this reason, it is not uncommon for competitors to control the strategies employed by a price maker and adapt them to their own goals when and to the extent possible.
To put some limits on a price maker’s ability to monopolize a given market, many governments create agencies that oversee commercial affairs within their borders. In some cases, a price setter can be prevented from lowering prices to a level that would bankrupt all other competitors and thus leave the price setter a monopoly controlling the entire market. Often the motivations for such restrictions are based on the concepts of allowing consumers to always have choice and also promoting competition which, in turn, encourages research and development of new and better products for consumer consumption. .