A price taker is a seller who faces a horizontal demand curve or a perfectly elastic demand curve. Any attempt to raise the price will cause the sellers to lose all buyers.
In short, in price-taking markets, prices are determined by demand and supply.
A price-searcher differs from a price-taker in that it can adjust the market price by varying the quantity. It faces a downward sloping demand curve, instead of a horizontal demand. By reducing output, it can charge a higher price.
In modern economics terms, a price-searching market is the same as a monopoly by definition. In this market, the seller faces a downward sloping demand.
Why do we learn Price Searching Market?
The price-taking market is one way for us to understand how prices affect production and how prices will change in response to changing constraints! However, since the model asserts right the from the beginning that there exists a uniform price in the market, it is incapable of explaining many kinds of market behaviour, such as membership fee pricing, tie-in sales, charging different prices on different customers, etc.
Unlike the price-taking model, the price-searching model asserts that sellers can influence the market price. Based on this assumption, the price-searching model is capable of explaining many phenomena that the price-taking model fails to do. The following pages will let you understand the use of this model in explaining market behaviour!