Economic power


Economic power

There is no agreed-upon definition of power in economics. At least five definitions of power have been used:

*purchasing power, i.e., the ability of any amount of money to buy goods and services. Those with more assets (or, more correctly, net worth) have more power of this sort. The greater the liquidity of one's assets, the greater one's purchasing power is.

* monopoly power, i.e., the ability to set prices or wages. This is the opposite of the situation in a perfectly competitive market, in which supply and demand set prices.

*bargaining power, i.e., the ability of players in a bargaining game to influence the outcome, which is the players sharing rule for something (a prize, a cake, access to resources). See e.g. Muthoo, Abhinay 1999: Bargaining theory with applications, Cambridge University Press. To be able to bargain prices ( toggle prices, or rewards etc... ). Also see definition of barganing or to bargain

* managerial power, i.e., the ability of managers to threaten their employees with firing or other penalties for not following orders or for not giving in satisfying reports. This exists if there is a "cost of job loss", especially due to the existence of unemployment and workers' lack of sufficient assets to survive without working for pay.

* class power in Marxian political economy: under capitalism this refers to a situation where a minority (the capitalists) in society controls the means of production and thus is able to exploit the majority (the workers).

In general, those with more power also have more freedom than others and may be able to exploit others in society and/or cause some sort of market failure.

It is worth noting that information is also a form of power, in the case of two agents entering into a contract; if one agent knows that their deal with turn out significantly better (or worse) than the other suspects, then they are exercising a form of informational economic power. See Information asymmetry


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