Suppose that Yves and Zoe are neighboring farmers, both of whom grow Christmas trees. Both sell their output to the same set of Christmas tree consumers so, in a real sense, Yves and Zoe compete with each other.

Does this mean that Yves should try to stop Zoe from growing Christmas trees or that Yves and Zoe should form an agreement to grow less? Almost certainly not: there are thousands of Christmas tree farmers, and Yves and Zoe are competing with all those other growers as well as with each other. Because so many farmers sell Christmas trees, if any one of them produced more or less, there would be no measurable effect on market prices.

When people talk about business competition, the image they often have in mind is a situation in which two or three rival firms are intensely struggling for advantage. But economists know that when an industry consists of a few main competitors, it’s actually a sign that competition is fairly limited. As the example of Christmas trees suggests, when there is enough competition, it doesn’t even make sense to identify your rivals: there are so many competitors that you cannot single out any one of them as a rival.

We can put it another way: Yves and Zoe are price-taking producers. A producer is a price-taker when its actions cannot affect the market price of the good or service it sells. As a result, a price-taking producer considers the market price as given. When there is enough competition—when competition is what economists call “perfect”—then every producer is a price-taker.

And there is a similar definition for consumers: a price-taking consumer is a consumer who cannot influence the market price of the good or service by his or her actions. That is, the market price is unaffected by how much or how little of the good the consumer buys.