Market Power

Definition

The ability to sustain $P > MC$

Market Power vs Market Structure

Market Structure describes the market environment that includes conditions, such as the number of firms, the product kind, etc. Market Power is the ability of a firm to sustain $P>MC$.

Example

Imagine electricity power market. The electricity consumption is not easy to change(Inelastic demand), and other power suppliers are running full capacity in peak demand (slim capacity margin). If one of the hundreds of suppliers, called Firm A, withholds its capacity, the market price rises steeply. As the Firm A can raise the price far above $MC$, the Firm A has the market power. Even though the Firm A has small share in the power market, it is still able to decide the market price. Therefore, market power $\ne$ market structure. See: Market Structure

Links: Monopoly