What is Market Power?
- Market power is a situation in which one firm, or a group of them acting as a cartel, can control prices in a market, often by restricting output, and thus have market power; in a theoretical, purely competitive market, this is not possible
How Do I Remember It?
- Think of market power as the “power” a firm has to control prices in a market. It’s like being the only seller of a rare product, allowing you to set the price higher because there are no other options for buyers.
Real World Example
- A monopoly is an example of a market structure with significant market power. In a monopoly, a single firm controls the entire market for a particular good or service, allowing it to set prices and output levels to maximize its profits.
- Cartels, where a group of firms collude to control prices and output, also exhibit market power.
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