Define market power

Market power relates to a firm or firms ability to control the price of good and services through manipulating the product supply, demand or both. The results of market power are reduction in market welfare and output. Market power is mostly common in monopoly markets, where the number of sellers is limited.

Sources of market power.

Entry barriers to the marker are one of the primary sources of market power. When it becomes hard to join a market, the number of suppliers in the market are limited; thus, creating a monopolistic market--thus giving the limited suppliers the power to control the price of goods and services in the market.

Size and number of sellers in a market is another significant source of market power. In a market with few large firms and many small firms, the large firms can control the market since they can control the supply and demand of goods and services in the market. Thus it becomes more comfortable for large firms to control the price of products and services in the market.