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 | ||
