Market power
Under market power is the ability of a market actor or a small group of market actors ( supply and demand ), to take effect on services, prices and / or conditions of the market partners. Market power is thus always time - and case -related relative market superiority of a market partner over another.
For example, in the case of a (relative) power providers succeed the seller - in perfect competition - to raise its selling price above the market price.
- 6.1 Allocative inefficiency
- 6.2 Productive inefficiency
- 6.3 Dynamic inefficiency
- 6.4 Qualitative inefficiency
Effect relationships in market power
Market power is often placed in a context of restricting competition. However, the relationship between market power and restriction of competition are ambiguous, since the behavior dependent manifold (over) power constellations change frequently.
Market power can equally on the procurement market ( demand or demand power ) are claimed as on the market ( supply and supplier power ). The long time raised lump and therefore unfounded accusation " of " buying power "of the" trade had to give a differentiated assessment. Companies can - if necessary, to varying degrees - to exercise over their customer's offer and at the same time from their suppliers or vendors buying power.
John Kenneth Galbraith pointed after the first, that the power supply against counterclaims power can promote competition. This becomes particularly clear generating the counter-power composite groups in the trade.
Influences and origins
The market power as a provider is greater, the
- Higher its market share is,
- Lower the number of potential and actual competitors is
- Less market power him his demand oppose ( counter-power, buyer power ),
- Greater the advantage in the availability of resources and
- Greater the substitution gap.
The completeness and causal dependence of these factors is, however, debatable.
Also, market power on the supply side caused by:
- Creation of artificial monopolies, which can be done for example by the state,
- Natural monopolies,
- Internal corporate growth, for example through performance projections and / or development of market entry barriers,
- External corporate growth, for example through mergers,
- Form composite groups ( cooperation) and
- Collusive behavior, ie the reciprocal exchange of information between companies.
Measurement
Market power or market superiority is a qualitative phenomenon, which basically evades precise measurement and needs assessment of the indicator- based assessment tight. As such indicators price elasticities can be used. For example, the above-mentioned factors affect the price elasticity of demand or the offer. The lower the price elasticity, the greater the market power of the supplier or demander. Therefore suitable for the determination of the amount of market power, the measurement of price elasticity or degree of monopoly ( Lerner index ), which is the negative reciprocal of the price elasticity.
Species
- Vertical market power is the power that can form between sellers and buyers. Supply but also demand - monopolies can have significant market power.
- Horizontal market power is the power which providers or demanders have with each other. In the presence of so-called buyers' market vendors can exploit this power with a large market share compared to its competitors.
Strategies for the exploitation of market power
Exploitation strategy
In this strategy, conditions are enforced on the market, which would be unenforceable without market power. This can be done both to suppliers as well as to buyers. The market power of suppliers over buyers is reflected in monopolistic behavior, ie the setting of higher prices at lower levels ( seller's market ). From buyers against sellers ' market power is used to influence the conditions of purchase ( buyer's market ). In competition law exists for the detection of such approaches, the group of cases of abuse of buyer power. In addition to the pricing in favor of the demander, this can also be done by transfer of risks to the provider.
Predation
In this strategy, an attempt is made, usually predatory pricing to force the competitor out of the market ( ruinous competition ).
Discrimination strategy
These are (mostly) the purchaser treated differently by the seller. This can be done for example by setting different prices for buyers. Another option is to sell the product only to certain traders.
Retention strategy
This strategy binds a purchaser of certain behaviors. This can be either the resale price and the exclusivity clause. The latter means that it is illegal dealers to sell competing products.
Welfare effects
Unlike the above-mentioned counter-power of the trade that tends to lead to price reductions, as well as missing or insufficient demand power industrial market power ( supplier power ) in many cases has a negative effect on welfare in an economy. It can occur four forms of inefficiency:
Allocative inefficiency
Since existing market power, the price is often larger than the marginal cost, there is indeed an increase in producer surplus, but also to a reduction in consumer surplus, which relatively more pronounced. Consequently, there is an allocative inefficiency.
Productive inefficiency
Companies with market power often have higher costs to carry as companies compete. One reason may be the lack of competitive pressure and otherwise cause productive inefficiency.
Dynamic inefficiency
In the presence of market power, it is possible that a company has less incentive to invest in research and development.
Qualitative inefficiency
Although the production of high quality goods brings about a welfare improvement, only lower quality products are produced, as the producer can in this case generate a higher pension.