Abuse of Market Power

What does the abuse of market power have to do with monopolies, mergers and cartel-type activities

Market Power occurs when a firm has a significant share of the market – say greater than 25% of the market. When a firm has a large share of the market it can act in a way that is said to be an abuse of market power. Abuse of market power includes:

• Setting higher prices
• Offering less choice
• Restricting competition.
• Inefficient allocation of resources.

These abuses of market power can occur in various situations.

• Monopoly – firms has more than 25% of market share – easier to increase prices.
• Mergers – When 2 firms join together to form one. This usually results in an increase in market power which can lead to outcomes such as higher prices.
• Cartels – When firms agree to restrict output and set higher prices. Effectively they are acting as if there was one monopoly in the industry.

• Monopoly
• Does Microsoft have too much Monopoly power?
• UK Mergers