Market Power

Market Power

Market power is when a company can set a certain price of an item by controlling the supply and/or demand. A company is able to control the price market of any good or service. Companies are able to exercising their market power based on their type of market source. There are four different types of marketing sources a company can fall into. The easiest one to be able to control price is a monopoly. Monopolies are huge companies that have little to no competition. The reason being is the start- up cost, permits, etc.; would be so high for one individual to obtain, that is would not even be worth the time. Companies like AEP or National Parks will be able to sustain over a long run.

Unlike a monopoly, monopolistic competition has a lot of different companies with all the same products. Monopolistic competition takes up all of the retail stores (i.e. target, Wal-Mart, JCP, etc.). Even though it is easier to be in the monopolistic competition, a company needs to be able to bring either good quality items and/or low prices in order to beat out the other companies. Monopolistic competition can either be short or long run.

With perfect competition, agriculture takes up the majority of this source. Farmers sell the exact same produce. With this market power there is no effect on goods and services. Produce is always needed. Due to the nature of agriculture, it is more sustained over a long run. Monopolistic competition is kind of similar to the perfect competition. Unlike perfect competition, monopolistic competition has a lot of companies that produce similar products.

Within the four different types of sources, a firm either falls into a short or long term run. It is hard for a firm to maintain market power over a long run because the company is responsible for the productivity. There are no variable inputs with long-run. Also the company needs to consider the marginal cost and the cost to keep the company in a long run.

References

O'Sullivan,...