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Economic power

Updated: 2017-06-07T15:15Z

Economic power can be divided into different categories-

  • Market power is the ability of a firm to profitably raise the market price of a good or service over marginal cost
  • 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.
  • 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 bargaining.
  • 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.
  • Worker power, i.e., the ability of workers to threaten their managers with resignation for not providing satisfying working conditions. This exists if there is a cost of hiring, especially due to the existence of low unemployment, recruiting costs, or training costs.
  • 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).

Information is also a form of economic 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).

Further reading

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