Q9RQ - Horngren'S Financial And Managerial Accounting

Question

Question: Explain the difference between price-takers and price-setters.

Step-by-Step Solution

Answer

Answer

Price-takers are the companies who accept the prices as per market competition. In contrast, price-setters are companies that control the price setting of their products and services. 

 

Step 1: Meaning of Price

The term price refers to the quantity of money exchanged when commercial activities occur in an economy. In other terms, prices are the payments made or received in exchange for goods or services. 

 

Step 2: Difference between price-takers and price-setters

A company is said to be a price-taker if it holds no control over the prices of its goods or services and is bound to accept the prices set by the market.

At the same time, a company is said to be a price-setter when it holds control over the prices of its products or services. In other terms, when a company holds rights to determine the prices, to some extent, it becomes a price-setters.