market power

Examples of market power in the following topics:

• Market Power

  • Market power is a measure of the economic strength of a firm.
  • A firm usually has market power by virtue of controlling a large portion of the market.
  • However, market size alone is not the only indicator of market power.
  • Other factors that affect a firm's market power include:
  • A firm's market power influences its behavior.

• Introduction to Firms with "Market Power"

  • The existence of market power is tied to the demand conditions the firm faces.
  • Market power is the ability to have some control over the price of the good offered for sale.
  • The conditions of entry or barriers to entry (BTE) are also important determinants of market power.
  • Monopoly is the market structure that is usually associated with the greatest market power.
  • Firms in monopolistic competition or imperfectly competitive markets are more likely to have limited market power because there are many firms with differentiated products (there are substitutes) and there is relative ease of entry and exit into the market.

• Demand Curve

  • The demand curve in a monopolistic competitive market slopes downward, which has several important implications for firms in this market.
  • This is due to the fact that firms have market power: they can raise prices without losing all of their customers.
  • The source of the market power is that there are comparatively fewer competitors than in a competitive market, so businesses focus on product differentiation, or differences unrelated to price.
  • Because the individual firm's demand curve is downward sloping, reflecting market power, the price these firms will charge will exceed their marginal costs.
  • As a result, the market will suffer deadweight loss.

• Few Sellers

  • An oligopoly - a market dominated by a few sellers - is often able to maintain market power through increasing returns to scale.
  • In an oligopoly market structure, a few large firms dominate the market, and each firm recognizes that every time it takes an action it will provoke a response among the other firms.
  • This interdependence is unique to the oligopoly market structure; in perfect and monopolistic competition, we assume that each firm is small enough that the rest of the market will ignore its actions.
  • The existence of oligopoly requires that a few firms are able to gain significant market power, preventing other, smaller competitors from entering the market.
  • One source of this power is increasing returns to scale.

• Sources and Determinants of Profit

  • Unlike competitive markets, uncompetitive markets - characterized by firms with market power or barriers to entry - can make positive economic profits.
  • The reasons for the positive economic profit are barriers to entry, market power, and a lack of competition.
  • Market power, or the ability to affect market prices, allows firms to set a price that is higher than the equilibrium price of a competitive market.
  • This situation can occur if the market is dominated by a monopoly (a single firm), oligopoly (a few firms with significant market control), or monopolistic competition (firms have market power due to having differentiated products). .
  • In the long run, a monopoly, because of its market power, can set a price above the competitive equilibrium and earn economic profit.

• Characteristics of Pure Competition

  • The idealized purely competitive market insures that no buyer or seller has any market power or ability to influence the price.
  • The sellers in a purely competitive market are price takers.
  • The conditions that ensure no seller has any market pose are:
  • Sellers cannot charge a price above the market price because sellers see all other goods in the market as perfect substitutes.
  • They can buy those goods at the market price.

• Introduction to Property Rights and Markets

  • Most of Neoclassical microeconomics is a story about the way market exchange reveals, communicates and uses individual evaluations about marginal benefits (MB) and marginal costs (MC).
  • The information about MC and MB revealed by market exchanges (like all information) is never perfect.
  • Pure competition is one way to ensure that no one buyer or seller has the ability to alter the outcome of market exchanges and the information revealed in prices.
  • The existence of market power allows a buyer or seller to influence the outcome of a market exchange and distort the information about MB and MC.

• Market Supply

  • Market supply is the summation of the individual supply curves within a specific market where the market is characterized as being perfectly competitive.
  • Market supply is the summation of the individual supply curves within a specific market.
  • In combination with market demand, the market supply curve is requisite for determining the market equilibrium price and quantity.
  • " If a firm has market power, its decision of how much output to provide to the market influences the market price, then the firm is not "faced with" any price, and the question is meaningless.
  • Therefore, production in the market is a sliding scale dependent on price.

• Reasons for Efficiency Loss

  • A monopoly is a business entity that has significant market power (the power to charge high prices).
  • A monopoly is less efficient in total gains from trade than a competitive market.
  • When a market fails to allocate its resources efficiently, market failure occurs.
  • In the case of monopolies, abuse of power can lead to market failure.
  • As a result, the market fails to supply the socially optimal amount of the good.

• Defining Monopoly

  • A monopoly is a specific type of economic market structure.
  • The entire market is served by a single firm.
  • In a monopoly, specific sources generate the individual control of the market.
  • Sources of power include:
  • Monopolies and competitive markets mark the extremes in regards to market structure.