Market power

Gauge an actor's ability to profitably set price above (or wages below) the competitive level by reading the slope of the downward-sloping residual demand curve it faces, quantified as the price-cost wedge (P − MC)/P.

Core Idea

Market power is the ability of a seller — or, in the monopsony mirror, a buyer — to set a price profitably above (or below) the competitive level without losing all sales. Its structural condition is a downward-sloping firm-level residual demand curve: buyers cannot costlessly substitute to rivals, so the firm trades price against volume. Exercising power means choosing the profit-maximising point on that curve, yielding price above marginal cost and quantity below the efficient level.

Scope of Application

Market power lives across the markets economics studies — product, labour, capital, and platform — wherever an actor faces a finite, downward-sloping residual response curve to its own choices.

• Industrial organization — the canonical home: the Lerner index, HHI, and oligopoly models.
• Antitrust enforcement — Sherman/Clayton, EU Article 102, merger review keyed to concentration.
• Labour economics (monopsony) — the buy-side mirror: wages suppressed below marginal revenue product.
• Macroeconomics — the aggregate-markup literature summing the Lerner scalar across firms.
• Regulation — rate-of-return and price-cap oversight of natural monopolies.

Cross-substrate look-alikes ("platform power," "narrative power") travel under the parents bargaining_power and bottleneck, not this residual-demand apparatus.

Clarity

Naming market power separates a large firm from a powerful one — a distinction raw size and concentration constantly blur. What matters is the slope of the residual demand curve, not the share: a dominant firm hemmed in by substitutes has little power, while a small differentiated firm can have real power. The concept also keeps two welfare effects distinct — a distributional transfer of surplus and an efficiency deadweight loss — because their policy responses differ.

Manages Complexity

Settings where a firm might extract surplus are wildly heterogeneous — a trauma centre, a search-ads platform, a company-town employer — each wrapped in its own frictions. Market power compresses this zoo onto one object, the residual demand curve, and one scalar, the Lerner index (P − MC)/P, equal to the reciprocal of that curve's elasticity. Every case becomes the same question — what is the slope, and is the wedge positive? — and the monopsony mirror and macro aggregation fold in without new machinery.

Abstract Reasoning

Market power routes every question through the residual-curve slope. Its foundational move is the size-bypassing test for power — asking whether the firm can raise price without losing all custom rather than consulting its share. The decisive move is scalar quantification with a dual reading — the Lerner index states both how much power and how inelastic the demand. Further moves source-decompose the slope into specific frictions, read a two-branch welfare consequence off one wedge, exploit mirror-symmetry to the buy side, and aggregate the scalar up to the macroeconomy.

Knowledge Transfer

Within economics market power transfers as mechanism: an actor facing a sloped residual response curve behind a substitution friction recurs across industrial organization, antitrust, labour economics, regulation, and the macro markup literature, with residual demand, marginal cost, the wedge, and deadweight loss traveling intact. Beyond economics the genuine cargo is the more general sloped-response, surplus-extraction pattern carried by the parents bargaining_power and bottleneck. Cross-substrate "platform power" or "narrative power" rest on different commitments; importing the demand-curve apparatus there distorts, so carry the parents and leave the named concept home. dag_edges:

Relationships to Other Abstractions

Current abstraction Market power Domain-specific

Parents (2) — more general patterns this builds on

• Market power is a decomposition of Bargaining Power Prime

  Market power is the price-theoretic specialization of bargaining power: finite substitution makes the counterparty's exit option costly and lets the actor move terms and surplus toward itself.

• Market power is a decomposition of Positional Advantage Prime

  Removing price theory leaves an actor whose occupied position among alternatives confers terms-setting leverage independent of its absolute size.

Children (4) — more specific cases that build on this

• Monopsony power Domain-specific is a kind of Market power

  Monopsony power is market power specialized to a buyer facing an upward-sloping residual supply curve and extracting a markdown.

• Lerner index Domain-specific presupposes Market power

  The Lerner Index presupposes market power as the target attribute whose exercised price-cost wedge it maps onto a scale.

• Monopolistic Competition Domain-specific is part of Market power

  Every firm in monopolistic competition contains local market power over its differentiated variety, expressed by downward-sloping residual demand and price above marginal cost.

• Oligopoly Domain-specific is part of, conditional Market power

  An oligopoly contains market power when differentiation, capacity, costs, conduct, or repetition gives firms downward-sloping residual demand and a durable price-cost wedge.

Hierarchy paths (2) — routes to 1 parentless root

• Market power → Bargaining Power → Asymmetry

Show alternative path (1)

Neighborhood in Abstraction Space

Market power sits in a crowded region of the domain-specific corpus (11^th percentile for distinctiveness): several abstractions share nearly its structure, so a description that fits it tends to fit its neighbors too.

Family — Market Structure & Price Equilibrium (25 abstractions)

Nearest neighbors

• Monopsony power — 0.90
• Lerner index — 0.89
• Edgeworth Paradox — 0.86
• Supply — 0.86
• Bertrand Paradox (Economics) — 0.86

Computed from structural-signature embeddings · 2026-07-12