What does market power mean in the economy?

Market power

Market dominance

In competition theory, market power - regardless of whether it is supplying or buying power - is viewed as the conceptual opposite of functioning competition. Market power is equated with a lack of functioning competition, with measures to prevent functioning competition being referred to as restricting competition. Understood in this way, market power is assigned a negative value judgment. In contrast, market power is defined as value-neutral in another usage, if not even with a positive evaluation. Power is seen as the ability to influence the environment in terms of one's own goals. Thus, power is an indispensable prerequisite for economic activity. Economic activities are inconceivable without the presence and use of power. I. d. S. is market power nothing else than the ability to shape the market (market), but within the framework of a functioning competition. The existence of excessive market power is characterized in competition policy by the term market dominance. The GWB uses the concept of dominance, i. H. it sees dangers to the freedom of competition of market participants not only in the case of a monopoly, but already when certain critical market share values ​​(50% or 25%) are exceeded (presumption of market dominance). In order to make it easier for the competition policy authorities to prove dominant positions, the legislature has endeavored to lay down market structural criteria for the existence of market dominance in the law as precisely as possible (see Section 22 GWB) (market structure scheme). In addition to market shares, financial strength, access to the procurement markets or sales markets, interrelationships with other companies and legal or actual barriers to market entry are important. In order to determine price abuse as a result of a dominant market position, competition law uses the market price method. The price currently existing on a market is compared with a fictitious price that would have arisen in competitive market processes (as if competition). If the difference between these two prices is too great, it is assumed that prices have been misused. The biggest problem when recording an outstanding market position of a company is the proper determination of market shares, because a relevant market has to be defined for this (market definition). The distribution of the market volume among the individual providers in the form of market share quotas is referred to as the market division. The market division is carried out according to a value (sales) or quantity (sales) yardstick. The market position of each individual provider can be described as the result of the market division. The market position shows the importance of a company compared to others. The market position is essentially determined by determining the market share. In addition, there are qualitative statements about the (product) technological, financial and sales-political performance (potentials and processes) of a company. The company with the largest market share is the market leader, the next largest company is the market challenger. The market leader has a dominant position, shapes market events and usually feels responsible for the market when it comes to its overall situation, for example when there is a threat from technology substitution or when new competitors enter. The market leader is often a point of reference for competitors, especially when setting prices (price leadership).

Literature: Böbel, Competition and Industrial Structure, Berlin 1984. Herdzina, K., Competition Policy, Stuttgart 1984. Buyer, E., Industrial Economics. An introduction to competition theory, Munich 1989.

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