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In economics, market power is the ability of a firm to alter the market price of a good or service. The Trade Practices Act 1974 is an act of the Parliament of Australia. The International Competition Network is an informal virtual network that seeks to facilitate cooperation between Competition law authorities globally A competition regulator is a Government agency, typically a statutory authority, sometimes called an economic regulator, which regulates and enforces Economics is the social science that studies the production distribution, and consumption of goods and services. Market price is an economic concept with commonplace familiarity it is the price that a good or service is offered at or will fetch in the marketplace it is of interest mainly in the A firm with market power can raise price without losing all customers to competitors.
When a firm has market power it faces a downward-sloping demand curve. In Economics, the demand curve can be defined as the graph depicting the relationship between the price of a certain Commodity, and the amount of it that
In perfectly competitive markets, market participants have no market power. In Neoclassical economics and Microeconomics, perfect competition describes a market in which no buyer or seller has Market power. A firm with market power has the ability to individually affect either the total quantity or the prevailing price in the market. The theory of the firm consists of a number of economic theories which describe the nature of the firm company, or Corporation, including its existence If the demand curve is downward sloping (that is, the most common situation where price increases lead to a lower quantity demanded), then the decrease in supply as a result of the exercise of market power creates an economic deadweight loss in comparison with a situation of perfect competition. In Economics, the demand curve can be defined as the graph depicting the relationship between the price of a certain Commodity, and the amount of it that In Economics, a deadweight loss (also known as excess burden or allocative inefficiency) is a loss of economic efficiency that can occur when equilibrium In Neoclassical economics and Microeconomics, perfect competition describes a market in which no buyer or seller has Market power. This is often viewed as socially undesirable, and as a result, many countries have anti-trust or other legislation with the aim of limiting the ability of firms to accrue market power. Such legislation often regulates mergers and sometimes introduces a judicial power to compel divestiture. In Finance and Economics, divestment or divestiture is the reduction of some kind of Asset for either financial goals or ethical objectives
A firm usually has market power by virtue of it controlling a large portion of the market. In extreme cases - monopoly and monopsony - the firm controls the entire market. In Economics, a monopsony (from Ancient Greek μόνος (monos "single" + ὀψωνία (opsōnia "purchase" is a Market form However, market size alone is not a good indicator of market power. Highly concentrated markets may be contestable if there are no barriers to entry or exit, limiting the incumbent firm's ability to raise its price above competitive levels. In Economics, market concentration is a function of the number of firms and their respective shares of the total production (alternatively In Economics, a contestable market is a Market served by only one firm but with mandated "competitive" pricing so as to escond the Monopoly In Economics and especially in the theory of Competition, barriers to entry are obstacles in the path of a firm which wants to enter a given Market
Market power gives firms the ability to engage in unilateral anti-competitive behavior. Anti-competitive practices are Business or Government practices that prevent and/or reduce Competition in a Market (see Restraint of trade Some of the behaviours that firms with market power are accused of engaging in include predatory pricing, product tying, and creation of overcapacity or other barriers to entry. Predatory pricing (also known as destroyer pricing) is the practice of a firm selling a product at very low price with the intent of driving competitors out of the Market Tying is the practice of making the sale of one good (the tying good to the De facto or De jure customer conditional on the purchase of a second distinctive Capacity Utilization measures the rate at which a firm makes use of their capital productive capacities such as factories and machinery If no individual participant in the market has significant market power, then anti-competitive behavior can take place only through collusion, or the exercise of a group of participants' collective market power. Collusion is an agreement usually secretive which occurs between two or more persons to deceive mislead or defraud others of their legal rights or to obtain an objective forbidden
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Oligopoly
When several firms control a significant share of market sales, the resulting market structure is called an oligopoly or oligopsony. An oligopoly is a Market form in which a Market or Industry is dominated by a small number of sellers (oligopolists An oligopsony is a Market form in which the number of buyers is small while the number of sellers in theory could be large An oligopoly may engage in collusion, either tacit or overt, and thereby exercise market power. Collusion is an agreement usually secretive which occurs between two or more persons to deceive mislead or defraud others of their legal rights or to obtain an objective forbidden An explicit agreement in an oligopoly to affect market price or output is called a cartel. A cartel is a formal (explicit agreement among firms Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve The behavior of firms in perfect competition or monopoly can be treated as a simple optimization, but an oligopoly requires game theoretic analysis. In Mathematics, the term optimization, or mathematical programming, refers to the study of problems in which one seeks to minimize or maximize a real function Game theory is a branch of Applied mathematics that is used in the Social sciences (most notably Economics) Biology, Engineering,
Monopoly power
Monopoly power is an example of market failure which occurs when one or more of the participants has the ability to influence the price or other outcomes in some general or specialized market. Market failure is a concept within economic theory wherein the allocation of goods and services by a Free market is not efficient. Price in Economics and Business is the result of an exchange and from that trade we assign a numerical Monetary value to a good, Sao Paulo Stock Exchangejpg|thumb| Virtual market arena where buyer and seller are not present and trade via intemediates and electronical information The most commonly discussed form of market power is that of a monopoly, but other forms such as monopsony, and more moderate versions of these two extremes, exist. In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient In Economics, a monopsony (from Ancient Greek μόνος (monos "single" + ὀψωνία (opsōnia "purchase" is a Market form Market participants that have market power are sometimes referred to as "price makers", while those without are sometimes called "price takers".
A well known example of monopolistic market power is Microsoft's market share in PC operating systems. Microsoft Corporation is an American multinational Computer technology Corporation, which rose to dominate the Home computer IBM PC compatible computers are those generally similar to the original IBM PC, XT, and AT. An operating system (commonly abbreviated OS and O/S) is the software component of a Computer system that is responsible for the management and coordination The United States v. Microsoft case concerned the allegation that Microsoft illegally exercised its market power by bundling its web browser with its operating system. United States v Microsoft There were many civil actions taking place in May 18 1998 A web browser is a software application which enables a user to display and interact with text images videos music games and other information typically located on a Some have suggested that Wal Mart exercises monopolistic market power; its size allows it to extract extremely low prices from its suppliers. Wal-Mart Stores Inc (or Walmart as written in its new logo is an American public corporation that runs a chain of large discount department stores .
See also
- Bargaining power
- Imperfect competition
- Market concentration
- Monopsony
- Natural monopoly
- Predatory pricing
- Price discrimination
External links
References
- Managerial Economics and Organizational Architecture 3rd Edition, Brickley, Smith and Zimmerman, McGraw-Hill, Chapter 7
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