In economics, what is it called when firms cannot control the market price of their product?

When firms cannot control the market price of their product, they are referred to as price takers. This situation typically occurs in perfectly competitive markets where there are many firms selling identical products. In such markets, individual firms have no power to influence the price; they must accept the prevailing market price determined by overall supply and demand.

The concept of being a price taker is integral to understanding market dynamics. In a competitive environment, if a firm were to charge a higher price than the market, consumers would simply purchase from competitors offering the same product for a lower price. Conversely, if a firm tries to sell below the market price, it would not be beneficial because they would not maximize their profits, since they could sell more at the market price.

This definition emphasizes the nature of competition and how it impacts pricing strategies, distinguishing price takers from price makers who have some degree of control over their pricing due to factors like product differentiation or market power.