Economics Perfect Competition Questions Medium
In perfect competition, market power refers to the ability of an individual firm or a group of firms to influence the market price of a product or service. In this type of market structure, no single firm has the power to control or manipulate the market price. Instead, all firms are price takers, meaning they have to accept the prevailing market price as determined by the forces of supply and demand.
Due to the large number of firms operating in perfect competition, each firm has a negligible market share and is unable to affect the overall market price. This implies that no individual firm can exert any control over the market or influence the price to its advantage. As a result, firms in perfect competition are considered to have zero market power.
The absence of market power in perfect competition ensures that all firms operate on a level playing field, with no unfair advantages or disadvantages. It promotes efficiency and allocative effectiveness as resources are allocated based on consumer preferences and market forces rather than the decisions of a few powerful firms.
Overall, market power is not a characteristic of firms in perfect competition. Instead, it is a feature of market structures such as monopolies or oligopolies, where a small number of firms have the ability to influence prices and control market outcomes.