In economics, what does "market power" refer to?

Market power refers to the ability of a firm or entity to influence the price of a product or service in the marketplace. This influence can arise from several factors, such as a firm's share of the market, the uniqueness of its product, or the level of competition in the industry. When a company holds significant market power, it can increase prices above the competitive level without losing all of its customers, thereby maximizing its profits.

For instance, a monopolistic company, which is the sole provider of a particular good or service, possesses significant market power because it can set prices without direct competition. Conversely, a company in a highly competitive market has little to no market power since many competitors offer similar products, constraining the firm’s ability to raise prices.

Other options do not accurately capture the definition of market power. Government regulations pertain to legal parameters that can affect how businesses operate but do not directly relate to a single entity's ability to set prices. Consumer demand reflects how much of a product consumers want to buy, which influences prices but is not the firm's market power in itself. Control over production costs relates to a company's internal operations and efficiency, rather than its capacity to dictate market prices. Thus, the correct understanding of market power centers on its capacity to