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11 Examples of Market Power

 , updated on July 17, 2023
Market power is the ability for a firm to influence the market price for a product, service, commodity or anything else that is traded on a market such as a stock. In a highly competitive market, individual participants have little or no control over price. The following are common examples of market power.

Monopoly

A monopoly controls a market and can set any price. Consumers will try to find substitutes if the prices gets too high.

Oligopoly

A market controlled by three or more firms may still have reasonably intense competition. Firms must match prices and may be careful not to trigger a price war.

Monopsony

A market with a single dominant buyer gives firms no pricing power unless there is cronyism involved.

Cartel

A group of firms or nations that conspire on price.

Cost Advantage

A firm with a lower cost than all competition has the power to set prices lower than the competition and may influence the price in one direction.

Premium Quality

Products with higher than standard quality may set a higher price if that price is perceived as a reasonable value as compared to the market price for standard quality.

Price Umbrella

A price umbrella is the price of the dominant product in a product category. This occurs where consumers strongly prefer a premium brand. The competition can’t hope to set their price higher than this brand.

Low Quality

Firms with lower than average quality will typically have to set their price below market to attract customers.

Perfect Competition

Most firms have little or no influence on the market price and simply accept prices. They may set prices higher than market but this will dramatically reduce their sales towards zero.

Imperfect Information

Consumers may accidentally buy things that are above the market price. For example, an ecommerce reseller than sets prices high hoping to attract orders from customers who are unaware of usual prices.

Captive Customers

Customers who must purchase from a business because they are captive. For example, passengers at an airport who are overcharged for snacks, meals and beverages due to a lack of open competition.
Overview: Market Power
Area
Definition
A firm's ability to raise market prices.
Example
A telecom company with a monopoly in a particular region can raise prices extremely high in the absence of price regulations.
A medicine protected by pharmaceutical patents may have near total market power.
Related Concepts
More about pricing:
Bargaining Power
Commoditization
Competition
Competitive Market
Customary Pricing
Demand
Dumping
Equilibrium
Inferior Good
Law Of Demand
Market Forces
Market Value
Perfect Competition
Predatory Pricing
Price Competition
Price Floor
Price Optimization
Price Sensitivity
Price Stability
Price Umbrella
Price War
Pricing Strategy
Relative Price
Snob Effect
Sticky Prices
Superior Good
Supply
Supply & Demand
Too Cheap To Meter
Veblen Goods
Willingness To Pay
More ...
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