Price Setters and Price Takers
Question
It can be postulated that there are two scenarios when it comes to price setting by providers and provider organizations. Providers refer to those practitioners eligible to bill third-party payers for the services they provide to patients. Provider organizations are facilities where care is delivered to patients. The first scenario is that providers and provider organizations are considered "price takers," in that the rates of reimbursement are set by the payers with little to no input from providers and organizations. The second scenario is that providers and organizations set their own prices and that payers are expected to pay these rates. These strategies will be explored in this week's discussion assignment.
Briefly discuss what is meant to be a price setter or price taker, the strategies employed in both approaches, and a clear listing of the pros and cons associated with each price setting strategy. After weighing the pros and cons of each, which approach do you feel best meets the needs of the key stakeholders? Sources has to be within the last 3 years.
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Solution
Price Setters and Price Takers
A price taker is a person or firm that must accept the market price for a good or service. A price taker cannot set the prices of goods and services that he sells. The price taker is the company that has to accept the market price for its product. Uber is a good example of this, with their drivers not able to set the price for the service. For instance, if a particular restaurant tries to raise its prices, consumers would just go to another restaurant, so it has no control over its prices. Price setters are businesses that have the power to set prices (Kogan, 2020). Price setters can change the market price by changing their prices. This is the case when many sellers and buyers are in a market. A firm can raise its price and not lose any customers because other firms will also raise their prices.
The advantage of a price taker is that they can continue to profit without worrying about how much their product is being sold. The disadvantages are that they may not cover all of their costs and therefore be forced out of business because of low-profit margins (Li, Li, Ahmed, 2020). If a company is a price taker, it must understand the cost structure to know the maximum profit margin.
The advantages of being a price setter are that a company can control the pricing structure and therefore have more flexibility when dealing with competition. Disadvantages include loss in revenue due to not charging the highest possible amount and loss in revenue (Cayla and Laurentjoye, 2020). Finally, price setters are the most suitable because they can change the prices with the market allowing them to maximize profits. This is true whether or not the price setter controls supply. Therefore, that enables them to meet the needs of key stakeholders.
References
Cayla, D., & Laurentjoye, T. (2020). Lachmann on price rigidity in the real world.
Kogan, K. (2020). Retailing and long-term environmental concerns: The impact of inventory and pricing competition. Journal of the Operational Research Society, 71(4), 647-659.
Li, Y., Li, J., & Ahmed, M. (2020). A three-stage incentive formation for optimally pricing social data offloading. Journal of Network and Computer Applications, 172, 102816.
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