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.

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.


Investment dictionary. . 2012.

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