When we think of a perfect competition model, we refer to the type of economía which is guided by the price of goods and services, without the individual actions of a natural or legal person being able to intercede in the least. However, when we move away from this idyllic model, the concept of market power arises, in which the sale of goods and services IS influenced by the individual actions of an agent. But what is market power? What does this indicator measure exactly? Pay special attention.
What does the market power indicator measure?
Market power measures the ability of a company or institution to increase or maintain the price of its goods and services above the level that would exist in a model of perfect competition (that is, in a market guided by a law of supply and the perfect and stable demand).
Since this does not always happen, especially in capitalist countries where the monopoly is present, excessive market power could lead to a reduction in the welfare state of a given society. This occurs, for example, when the quantity produced is infinitely less than the quantity demanded.
Examples of market power in the economy
Although it is quite difficult to measure market power today - some professionals advocate using the Lerner Index, thus measuring the difference between the price of goods and their marginal costs - we can identify some examples of the most representative .
The concept of monopoly refers to the type of market in which there is only one seller or producer that meets the needs of all potential buyers. This is the most extreme case of market power, since the supply is controlled by a single agent.
El oligopoly It is a broader version of the monopoly, since several producers control the production of a good or service, thus dividing up the economic market.
Although the term of monopsony It usually generates confusion with the concept of monopoly, the truth is that there is a small difference: in a monopsony there is only one buyer, who completely controls the demand.
In the same way that monopolies and oligopolies differ from each other by the number of sellers who control the market, monopsonies and oligopolies do the same with the number of buyers.