- "In economics, market power refers to the ability of a firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit."
An analysis of the competition strategies and tactics of firms, the degree of market power they hold, and how these impact market outcomes.
Monopoly: A market structure in which a single firm dominates the entire market, creating market power.
Oligopoly: A market structure in which a small number of firms dominate the market, creating interdependence among them.
Perfect Competition: A market structure in which there are many firms selling identical products, with no barriers to entry or exit, creating no market power.
Market Power: The ability of a firm or group of firms to raise prices above marginal cost without losing customers to competitors.
Barriers to Entry: Obstacles that prevent new firms from entering a market, such as high fixed costs, regulatory barriers or economies of scale.
Price Discrimination: The practice of charging different prices for the same product or service to different customers, based on their willingness or ability to pay.
Vertical Integration: The process by which a firm merges with or acquires companies that are involved in different stages of the production or distribution process, such as suppliers or retailers.
Merger and Acquisition: The process by which two or more firms combine to form a single entity or by one firm acquiring another firm or its assets.
Cartels: A group of firms that collude to set prices or output levels or divide the market, creating market power.
Game Theory: A mathematical approach to strategic decision-making in which the outcome of each player's decision is dependent on the decision of others.
Collusion: The practice of firms cooperating to limit competition, such as price fixing or market sharing.
Antitrust Policy: Government policies and regulations aimed at promoting and protecting competition in markets, such as preventing monopolies or cartels.
Monopoly: This occurs when a single company has total control over the market and can set prices and output levels. Other firms in the market have no power to affect prices or compete.
Oligopoly: This refers to a market dominated by a few large firms. The behavior of each firm in the market affects the others, leading to a complex interdependence of pricing and output decisions.
Monopsony: This is the opposite of a monopoly, where there is only one buyer for a product, giving that buyer significant power to dictate the price it pays.
Perfect competition: This is a theoretical market structure where many small firms sell homogenous products, with no barriers to entry, and no one firm has market power.
Duopoly: This is a special case of oligopoly where there are only two firms competing against each other. It is also the simplest type of oligopoly.
Cartel: A group of firms work together to limit output and raise prices. It operates like a monopoly but involves multiple firms.
Natural monopoly: A single firm can produce the entire market's output at a lower cost than two or more firms.
Contestable Market: This is a market where potential entrants can easily enter and exit, even if there are already established firms operating in the market.
Monopolistic competition: This is a market structure with many small firms selling slightly different, but close substitutes for products.
Predatory pricing: A firm engages in intentionally lowering prices below cost to drive competitors out of business, then raising prices once the competition disappears.
Price discrimination: The practice of charging different prices for the same product to different customers, usually based on the customer's willingness to pay or their location.
Barrier to entry: A barrier to entry is anything that prevents or limits new firms from entering a market, often benefiting existing firms.
- "Market power occurs if a firm does not face a perfectly elastic demand curve and can set its price (P) above marginal cost (MC) without losing revenue." - "Market participants in perfectly competitive markets are consequently referred to as 'price takers', whereas market participants that exhibit market power are referred to as 'price makers' or 'price setters'."
- "The magnitude of market power is associated with the gap between P and MC at a firm's profit maximising level of output."
- "The market power of any individual firm is controlled by multiple factors, including but not limited to, their size, the structure of the market they are involved in, and the barriers to entry for the particular market."
- "A firm with market power has the ability to individually affect either the total quantity or price in the market." - "Price makers face a downward-sloping demand curve and as a result, price increases lead to a lower quantity demanded."
- "The decrease in supply creates an economic deadweight loss (DWL) and a decline in consumer surplus." - "Larger firms with high markups negatively affect labour markets by providing lower wages."
- "Perfectly competitive markets do not exhibit such issues as firms set prices that reflect costs, which is to the benefit of the customer." - "As a result, many countries have antitrust or other legislation intended to limit the ability of firms to accrue market power."
- "Market power provides firms with the ability to engage in unilateral anti-competitive behavior." - "Firms with market power are accused of limit pricing, predatory pricing, holding excess capacity, and strategic bundling."
- "A firm usually has market power by having a high market share although this alone is not sufficient to establish the possession of significant market power."
- "If no individual participant in the market has significant market power, anti-competitive conduct can only take place through collusion."
- "An example of which was seen in 2007, when British Airways was found to have colluded with Virgin Atlantic between 2004 and 2006, increasing their surcharges per ticket from £5 to £60."
- "Regulators are able to assess the level of market power and dominance a firm has and measure competition through the use of several tools and indicators."
- "Regulators are able to oversee and attempt to restore market competitiveness."
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- "This is viewed as socially undesirable and has implications for welfare and resource allocation."
- "Larger firms with high markups negatively affect labor markets by providing lower wages."
- "A firm with market power has the ability to individually affect either the total quantity or price in the market."
- "Market participants in perfectly competitive markets are consequently referred to as 'price takers', whereas market participants that exhibit market power are referred to as 'price makers' or 'price setters'."
- "The size of the gap, which encapsulates the firm's level of market dominance, is determined by the residual demand curve's form." - "A steeper reverse demand indicates higher earnings and more dominance in the market."