Essay On Market Power

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MARKET POWER AND ITS SOURCES, CONJECTURAL VARIATIONS MARKET POWER The ability of a seller to raise its price relative to its rivals to raise its price relative to its rivals without losing all of its sales. Market power explains the concept of Price takers and Price makers. It is the ability of a firm to raise its profit margins. According to the classification of markets, perfectly competitive markets have no market power and hence they are termed as “PRICE TAKERS”. On the other hand, a firm with total market power can raise prices without losing any customers to competitors and hence they are termed as “PRICE MAKERS”. Significant market power is when prices exceed marginal cost and long run average cost, so the firm makes economic profits.…show more content…
Apple introduces the most technologically advanced products before other companies can, giving them more business and establishing them as an innovator. These days, there are not many other places to go to buy a better product, so the consumer has to either buy iPhones at higher prices or do without them. There are few other competitors because of high barriers of entry. Since apple has so much market power and economy of scale, they can make almost a full profit on the selling price, making the company billions of dollars richer each year. SOURCES OF MARKET POWER 1. ECONOMIES OF SCALE: Reduction in cost of production by an increase in production volume is Economies of scale. It is also referred to as diminishing marginal cost. Reduction in cost will help the firm to: • Drop its prices thereby increasing its demand • Charge the same amount and earn a higher profit A combination of the above two can also be considered. Spreading fixed costs over a larger production base is one way to generate operational efficiencies. Other ways include specialization of labor, reorganization of key processes, implementation of new technology, or the purchase of materials at bulk

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