Chapter 23, Problem 1CQ

To determine

The maximum price under the price-searcher market.

Explanation of Solution

The price-searcher markets are those markets with the downward sloping demand curve and with lower barriers to entry. The markets with these two characteristics are known as the price-searcher market. The name is given because the lower barriers make the market competitive and the downward sloping demand curve makes the sellers to search for the price and quantity that will maximize the profit.

Under the price-searcher market, the power to determine the price of the product is completely vested with the producers itself. However, it does not mean that the producer has the monopoly market power. There will be tough competition in the market because of the lower barriers to entry. The products will be differentiated but will be close substitutes for one another.

Thus, when the price-searcher market seller determines the maximum price possible for their product, they would end up losing all the consumers to the competitors because the difference between the products will only be design, dependability, location, packing, and so on. Thus, even though the price is determined by the producer itself, the producer would not determine the maximum possible price for the product.

Economics Concept Introduction

Competitive price-searcher market: The markets that are characterized by the presence of the low barriers to entry and exit and a downward sloping demand curve are called the competitive price-searcher market.