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What are the characteristics of price-taker markets?

Consider the situation of Les Parrot, a Texas cattle rancher. In the financial pages of the local newspaper, he finds that the current market price of quality steers is 88 cents per pound. Even if his ranch is quite large, there is little that Parrot can do to change the market price of beef cattle. After all, there are tens of thousands of farmers who raise cattle. Thus, Parrot supplies only a small portion of the total cattle market. The amount that he sells will exert little or no effect on the market price of cattle. Parrot is a price taker.
The firms in a market will be price takers when the following four conditions are met:

• All the firms in the market are producing an identical product (for example, beef, or cattle, of a given grade).

• A large number of firms exist in the market.

• Each firm supplies only a very small portion of the total amount supplied to the market.

• No barriers limit the entry or exit of firms in the market.

When these conditions are met, firms selling in the market must accept the market price. This is why they are called price takers. If the firm sets a price above the market level, consumers will simply buy from other sellers. Why pay the higher price when the identical good is available elsewhere at a lower price? For example, if the price of wheat were $5.00 per bushel, a farmer would be unable to find buyers for wheat at $5.50per bushel. A firm would gain nothing by setting its price below the market level, because any small firm in the market can already sell as much as it wants at the market price. A price reduction would only reduce revenues. A firm that is a price taker thus faces a perfectly elastic demand for its product.