Market Power

grocery store ca handling seizes firms to increase economic profit by dint of strategic tactics such as erecting barriers to accession, minify challenger, limiting tacks, and reducing the originator of buyers and suppliers (Brickley, Smith, & Zimmerman, 2009). Furthermore, foodstuff place tycoon is specify as a bon tons ability to set up equipment casualty by influencing an levels supply, demand or both. A company with market effect would be able-bodied to affect scathe to its benefit. Firms with market power atomic number 18 verbalise to be price makers as they are able to set the price for an item while maintaining market share (Investopedia, 2013).Essentially, companies must(prenominal) control all of the aspects of market power in order to be able to rescind prices without losing customers. If a market is abstemious to enter (lack of entry barriers), then a price increase relinquish for allow a nonher firm to erode internet by introducing a lower-cost product. Similarly, if rivalry is not reduced, each price increase result allow for a rival to upkeep prices the same and gain market share. In addition, substitutes at lower prices will bar efforts to raise prices. Finally, if a company has hardly a(prenominal) buyers, the buyers have the power. Therefore, price increases will be met with a potential loss of major profit centers.In the NBC Video News report card How to compound Prices Without Losing Customers, Bob Prosen alludes to several practices that allow companies to raise customers without losing demand. Essentially, Prosen provides consultation on how to micturate inelastic demand, where a change in price does not result in a significant change of demand. For exercising, increase the value proposition reduces the likelihood of substitute products (substitutes must copy change magnitude value) and decreases rivalry (steps above rivals), resulting in the greater market power needed to raise prices.Prosen states tha t change magnitude value makes the customer appreciate the company more, resulting in the ability to raise price (Ramberg, 2012). As another example, Prosen stresses the importance of evolution relationships, people like to do care with people they like (Ramberg, 2012). Essentially, Prosen is suggesting erecting barriers to entry by creating friendships and alliances, again resulting in increased market power needed to raise prices. As a capstone example of the need for market power, Research byMark McCabe of the atomic number 31 Institute of Technology demonstrates the market power of academic journal vendors. Essentially, McCabe found that the consolidation of academic journal vendors (libraries) has led to an oligopoly, and thusly the price structure of academic journals is exceedingly inelastic (McCabe, 2000). Because recent mergers had resulted in fewer suppliers, vendors of academic journals were able to control the market and raise prices through the use of supplier pow er. The demand for quality research for use in education cannot change it is required.Therefore, a change in price will not result in a drop in demand. References Brickley, J. A. , Smith, C. W. , & Zimmerman, J. L. (2009). Managerial political economy and Organizational Architecture. New York The McGraw-Hill Companies, Inc. Investopedia. (2013, March 20). Market federal agency. Retrieved from Investopedia http//www. investopedia. com/terms/m/market-power. asp McCabe, M. J. (2000). faculty member Journal Pricing and Market Power. THE AMERICAN ECONOMIC REVIEW, 259-269. JJ Ramberg (Author). MSNBC (Publisher). (07/20/2008). How to Raise Prices Without Losing