Question

describe the difference between providers as price-setters and providers as price-takers and how this difference affects pricing

Answer 1

Providers are price setters when the number of providers are less and the number of takers of the service or product are more. Monopoly (where there is only one provider) or oligopoly (where they are few providers) are the kind of markets where price are set by the providers. When the providers are price setters the price of the product or service can be high as they are able to charge whatever they desire because they are contolling the production. However, they have to be careful that they don't charge extraorbitant price or else the demand can fall if they are providers of service or product that is not essential. An example of providers being price setters is the OPEC where they control the majority of the world's oil production and have control over the increase or decrease in oil prices.

Providers are price takers when the number of providers are more and there is competiton within them to gain market share. Also, when the providers are unorganised they act as price takers as they do not have the power to set the price. This can be seen in commodities markets where the traders are the one who set the price and the actual producers of the commodities have to take the price. When providers are price takers the prices of the commodities are often lower and the margin for the providers are low. The providers can often resort to hoarding of the products to create an artificial shortage in the market so that the prices can increase. However, doing so is illegal in many countries and the providers can face punishment if they get caught.