Market Power

AAA

DEFINITION of 'Market Power'

A company's ability to manipulate price by influencing an item's supply, demand or both. A company with market power would be able to affect price to its benefit. Firms with market power are said to be "price makers" as they are able to set the price for an item while maintaining market share.


Generally, market power refers to the amount of influence that a firm has on the industry in which it operates.

INVESTOPEDIA EXPLAINS 'Market Power'

Theoretically, companies are assumed to have zero market power - an idea known as perfect competition. Iindividual firms should have no control over prices when other firms sell identical or nearly identical products. There are occasions, however, where companies are able to manipulate supply and demand, thereby affecting the prices of the goods. Antitrust laws were created to help regulate pricing and maintain healthy market competition.

RELATED TERMS
  1. Perfect Competition

    A market structure in which the following five criteria are met: ...
  2. Antitrust

    The antitrust laws apply to virtually all industries and to every ...
  3. Price Fixing

    Establishing the price of a product or service, rather than allowing ...
  4. Price Rigging

    An illegal action performed by a group of conspiring businesses ...
  5. Monopoly

    A situation in which a single company or group owns all or nearly ...
  6. Precedent Transaction Analysis

    A valuation method in which the prices paid for similar companies ...
RELATED FAQS
  1. What is an antitrust law?

    Antitrust laws - also referred to as "competition laws" - are statutes developed by the U.S. Government to protect consumers ... Read Full Answer >>
  2. What are common concepts and techniques of managerial accounting?

    The common concepts and techniques of managerial accounting are all the concepts and techniques that surround planning and ... Read Full Answer >>
  3. How is abatement cost accounted for on financial statements?

    Abatement costs are accounted for on a company's financial statements through increases in either cost of goods sold or operational ... Read Full Answer >>
  4. According to the neoclassical growth theory, what factors influence the growth of ...

    The neoclassical growth theory builds five major variables into its time-sensitive production formula. The first is total ... Read Full Answer >>
  5. What are the advantages and disadvantages of capitalizing interest for tax purposes?

    The advantages and disadvantages of capitalizing interest for tax purposes lie in a company's ability to manage or manipulate ... Read Full Answer >>
  6. What are the advantages of a limited government in connection with a capitalist economy?

    Economic markets are efficient to the extent that the effects of transactions are clearly understood and the prices of goods ... Read Full Answer >>
Related Articles
  1. Personal Finance

    A History Of U.S. Monopolies

    These monoliths helped develop the economy and infrastructure at the expense of competition.
  2. Personal Finance

    Antitrust Defined

    Check out the history and reasons behind antitrust laws, as well as the arguments over them.
  3. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  4. Economics

    Calculating Income Elasticity of Demand

    Income elasticity of demand is a measure of how consumer demand changes when income changes.
  5. Economics

    Understanding Implicit Costs

    An implicit cost is any cost associated with not taking a certain action.
  6. Fundamental Analysis

    Explaining the Empirical Rule

    The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.
  7. Economics

    Understanding Diseconomies of Scale

    Diseconomies of scale is the point where a business no longer experiences decreasing costs per unit of output.
  8. Economics

    Explaining Demographics

    Demographics is the study and categorization of people based on factors such as income level, education, gender, race, age, and employment.
  9. Fundamental Analysis

    Calculating Degree of Financial Leverage

    Degree of financial leverage (DFL) is a metric that measures the sensitivity of a company’s operating income due to changes in its capital structure.
  10. Economics

    What Does Capital Intensive Mean?

    Capital intensive refers to a business or industry that requires a substantial amount of money or financial resources to engage in its specific business.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!