Market power exists when a firm is able to sell its products above the existing competitive level or decrease the costs of its primary and support activities below the competitive level, or both.

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Market power refers to a firm's ability to influence the market conditions, such as prices, output, and quality, due to its size, technology, brand reputation, or other factors. One way to exercise market power is by charging a price above the competitive level, i.e., a price that is higher than the marginal cost of production. Another way is by reducing the costs of production or distribution below the competitive level, i.e., a cost that is lower than the average cost of rival firms. Often, market power arises from barriers to entry that prevent new firms from entering the market, such as patents, licenses, regulations, or economies of scale. However, market power can also be temporary or conditional, depending on the market conditions, the behavior of rivals, and the response of consumers.

Market Power Exists When a Firm Is Able to Sell