Market power

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As market power ( english market power ) refers to the ability of a market participant , on products or services , market prices and / or other market data of other market participants influence to take.

General

The composition market power is made up of the components “ market ” and “ power ”. The ability of a market participant ( supplier , customer , other interested parties) to influence other market participants must develop in a market. It is necessary that the influence of a market participant is strengthened in such a way that he can influence prices or other market data. Other market data, in particular sales volume , product quality , customer service , delivery time , product warranties , payment terms or delivery conditions . Market power is therefore the possibility of influencing the market behavior of market participants in line with one's own corporate goals. Market power is therefore always the relative market superiority of one market participant over another in relation to the point in time and the individual case .

history

For the French economist Léon Walras , in his theory developed in 1834, the actors had no market power and treated the market prices as given constants ( data parameters ). The French colleague Antoine-Augustin Cournot also assumed in his “perfect competition” ( French concurrence indéfinie ) in 1838 that there was no market power. The market equilibrium can be disturbed by market power, resulting in inefficiencies (inefficiencies). In the tradition of neoclassical welfare economics that goes back to Arthur Cecil Pigou in 1929, these inefficiencies can be eliminated through regulatory intervention by the state . State market regulation can therefore limit or prevent market power. The Lerner Index formulated by Abba P. Lerner in 1934 is a concept that can determine a company's pricing power . It describes the percentage deviation of the marginal costs of a good from its market price. The greater the difference in the index, the higher the market power. In 1940, Walter Eucken saw market power in the fact that it could override competitive prices. He advocated the “creation of a functional order for the modern economy through an economic constitution”. In 1942, Joseph A. Schumpeter assumed that market power through higher profits would favor research and development activities , which would lead to innovations and thus economic growth . For Friedrich August von Hayek , market power in 1946 did not mean a threat to competition , but only required unhindered market access and undisturbed market information.

The Act against Restraints of Competition (GWB), which came into force in January 1958 , initially did not regard market power as bad in and of itself, but merely the abuse of this market power. For this reason, it initially only contained abuse control over dominant companies (Section 19 GWB old version). It was only with the introduction of merger control in August 1973 that it was assumed that market power could at least have an anti-competitive effect.

If a company is able to increase the market price significantly and over a longer period of time above its marginal cost price, it has pricing power, which is referred to in economic theory as market power. A natural monopoly achieves market power if fixed-cost-intensive companies manage to increase their production and thus lower marginal costs, which enables them to force smaller providers out of the market. The lower the price elasticity of demand, the greater the market power of a supplier.

species

A distinction must be made between vertical and horizontal market power:

Vertical market power
is the power that can develop between suppliers and buyers. Supply and demand monopolies can have considerable market power.
Horizontal market power
is the power that suppliers and buyers have among themselves. When there is a so-called buyer's market , providers with a large market share compared to their competitors can take advantage of this power.

Criteria of market power

The competition theory combines the degree of competition in a market with market power . The greater the market power, the lower the degree of competition in a market and vice versa. The monopolist (supplier) or a monopsony (buyer) has the greatest market power, each uniting all market power and being able to determine the market price and sales volume with their market behavior. A perfect market, on the other hand, only enables market participants to behave as price or volume adjusters . They cannot influence competition and they have no market power.

Some criteria can contribute to market power. These include, above all, market leadership, market shares and bargaining power. However, the completeness and causal dependence of these influencing variables is disputed. The measurement of price elasticity or the degree of monopoly ( Lerner index ), which represents the negative reciprocal price elasticity, is suitable for determining the level of market power .

Market leader

While the quantitative market leader has the largest market share in terms of market volume or sales volume, the qualitative market leader is a technology , quality or brand leader . The technology leader has the greatest technological lead within a certain market or market segment , the quality leader clearly stands out from other competitors due to its outstanding product quality, the brand leader has the largest market share of a certain brand . Market leaders can benefit from the economies of scale and their market power. Also, price leadership and cost leadership can to market leadership and contribute to market power.

Market shares

As a causal relationship , it is assumed that high market shares are associated with high market power of the market leader. Market power correlates positively with market shares. The higher the market share of a market participant, the greater its market power. The largest market share - and thus the greatest market power - have monopolists (in the extreme case: 100%), followed by oligopolists (> 20% to <80%), while polypolists have the smallest market shares (<20%). That is why market power does not play a role in Polypol. Large companies usually have high market shares , while small companies are less able to exercise market power because of their small size .

Bargaining power

For Michael E. Porter , market power is synonymous with bargaining power . Bargaining power is therefore also part of market power. The higher the bargaining power of the supplier, the lower the profit margin of the buyer and the lower the attractiveness of the industry and vice versa. However, bargaining power not only affects prices, but can also capture all other market data. Indicators of the great bargaining power of suppliers are high switching costs , substitution gaps or monopoly positions. As a buyer with large volumes, the state has high bargaining power; He is sometimes the most important or even the only buyer ( road construction , weapons ), so that he also has greater market power.

Buyer and seller market

Buyer's market ( English buyer's market ) and seller's market ( english market seller's ) represent two extreme market situations in which a part of the market data are determined by the buyer or the seller. The reasons for the better bargaining power of the buyer or seller are in each case an excess supply when there is little demand ( supply excess ) or a short supply when there is very high demand ( excess demand ). The main consequences of the buyer's and seller's market are falling or rising prices as well as favoring black markets and monopoly situations. The cobweb theorem or the so-called pig cycle show how buyers and sellers' markets follow one another and can cause each other.

Strategies for exploiting market power

Exploitation strategy

With this strategy , conditions are enforced on the market that would not be enforceable without market power. This can be done both with suppliers and with customers . The market power of suppliers over buyers is shown by monopoly behavior, i.e. setting higher prices for lower quantities ( seller's market ). Market power is used by buyers vis-à-vis suppliers to influence purchasing conditions ( buyer's market ). In competition law, the case group of abuse of buyer power exists to record such procedures . In addition to pricing in favor of the consumer, this can also be done by shifting risks to the providers.

Displacement strategy

This strategy tries to push the competitor out of the market , mostly through competitive prices ( ruinous competition ).

Discrimination strategy

In this case, the buyers are (mostly) treated differently by the seller. This can be done, for example, by setting different prices for customers . Another possibility is the product only to certain dealers to sell .

Retention strategy

This strategy binds a customer to certain behaviors. This can be both the price maintenance and the exclusivity obligation . The latter means that retailers are prohibited from selling competing products.

Welfare effects

In contrast to the countervailing power of trade , which tends to lead to price reductions, and in the event of a lack of or insufficient buyer power, industrial market power (supplier power) in many cases has a negative effect on welfare in an economy. Four forms of inefficiency can arise:

Allocative inefficiency

Since the price is often above the marginal costs when there is market power , there is an increase in the producer surplus , but there is also a decrease in the consumer surplus , which is relatively stronger. As a result, there is an allocative inefficiency.

Productive inefficiency

Companies with market power often have to bear higher costs than competing companies. One reason for this can be the lack of competitive pressure and the resulting productive inefficiency.

Dynamic inefficiency

In the presence of market power, it is possible that a company will have less incentive to invest in research and development .

Qualitative inefficiency

Although the production of high-quality goods leads to higher welfare , only products of lower quality are produced, as the producer can generate a higher rent.

Market power and antitrust law

Market power is often associated with restraint of competition . The relationships between market power and restraint of competition are ambivalent, however, since the behavior-dependent, diverse (super) power constellations frequently change. Under antitrust law, market power is interpreted in the sense of market dominance , which tends to lead to the elimination of competition . Antitrust law therefore tries to prevent market power. Under antitrust law, it is important that this market power has arisen through mergers ; market power through natural company growth is not prohibited per se.

Antitrust law measures market power based on market shares. To do this, a relevant market is first defined according to the so-called demand market concept. According to this, several products belong in one store if they are functionally interchangeable from the consumer's point of view. In the case of multi-sided platforms that bring several players together, such as newspapers (advertising companies and readers), however, the different markets can be combined into a single market. In the market defined in this way, market shares are calculated on the basis of sales. In the case of a market share of at least 40%, according to Section 18 (4) GWB, it is rebuttably presumed that there is a dominant position , in the case of a total of companies (2 or 3 companies) a 50% market share is deemed to be dominant, in the case of 4 or 5 companies 66 2 / 3% ( Section 18 (6) GWB; “presumption of oligopoly”). According to the case law of the European Court of Justice, market shares of more than 50% are evidence of a dominant position; below 25% there is no market power. The existence of a dominant position leads to proceedings by the antitrust authorities ( Section 32 (1) GWB). In all EU member states the abuse of a "dominant position in the internal market or in a substantial part of it by one or more companies" is prohibited ( Art. 102 TFEU ).

Market power and wage developments

In 2018, the non-profit Bertelsmann Foundation, in cooperation with Prognos, determined that the increasing market power of highly productive companies is slowing the growth in wages. The main drivers of this development are individual large corporations such as Apple or Google . Thanks to digital technologies, these require comparatively few employees, which means they can work more productively and, in some cases, massively increase their profits, so that they will soon dominate a market. However, wages are not keeping pace with this rapid growth.

The Bertelsmann Stiftung and Prognos determined that the varying rates of increase in investment income and wage shares lead to growing inequality. It is true that individual large corporations generally pay their employees better than many competitors. From a macroeconomic perspective, however, this only benefits a small group.

literature

Web links

Individual evidence

  1. ^ Alfred Stobbe: General Economic Theory , 1975, p. 180.
  2. ↑ "Partner power" according to Helmut Arndt : Power and Competition , in: Helmut Cox (Hrsg.), Handbuch des Kompetenz, 1981, p. 49 ff.
  3. ^ Léon Walras: Elements d'Economie Politique Pure , 1874, p. 70.
  4. ↑ Antoine-Augustin Cournot: Recherches sur les principles mathématiques de la théorie des richesses , 1838, p. 101 ff.
  5. ↑ Arthur Cecil Pigou: Welfare , 1929, p. 336.
  6. ↑ Walter Eucken: Fundamentals of National Economy , 1940, p. 266.
  7. ↑ Joseph A. Schumpeter: Capitalism, Socialism and Democracy , 1942/1946, pp. 143 ff.
  8. ↑ Friedrich August von Hayek: The sense of competition , Volume 4, 1946, p. 119.
  9. ↑ Gabler Wirtschaftslexikon: Marktmacht , Volume 1, 2004, p. 687.
  10. ^ Dennis Carlton: Competition Policy International 3 , 2007, p. 3.
  11. ^ Rainer Klump : Economic Policy , 2011, p. 68.
  12. ↑ Rainer Klump, Economic Policy , 2011, p. 153.
  13. ↑ Heribert Meffert : Marketing , Wiesbaden 2000, p. 251.
  14. ↑ Ronald Krengel: Minimum Taxation and Efficiency , 2006, p. 44.
  15. ^ Hans J. Nicolini: Investigations into the recording of entrepreneurial market power , Vandenhoeck & Ruprecht, Göttingen 1978.
  16. ↑ Heribert Meffert: Marketing , Wiesbaden 2000, p. 489 f.
  17. ↑ Jochen Becker: Marketing-Konzeption , 2006, p. 67.
  18. ↑ Eckart Schmitt: Strategies for medium-sized world and European market leaders , 1997, p. 60.
  19. ↑ Sven Peder-Björn Schiemann: Market and Organizational Structures in Differentiation Competition , 1998, p. 97.
  20. ↑ Michael E. Porter: Competitive Strategy: Techniques for analyzing Industrial Competitors , 1980, p. 24 f.
  21. ^ Norbert Andel: Finanzwissenschaft , 1998, p. 217.
  22. ↑ Heribert Meffert: Marketing , Wiesbaden 2000, p. 261 f.
  23. ↑ Hans-Otto Schenk : The four-market construct as a behavioral approach to explaining the power constellations in trade , in: Handelsforschung 1999/2000, ed. von Volker Trommsdorff , Wiesbaden 2000, pp. 215-232, ISBN 3-409-11616-8 .
  24. ↑ Gabler Wirtschaftslexikon, Volume 4, 1984, Col. 231
  25. ↑ Michael T. Stoll: Third Market Obstructions in German and European Antitrust Law , 2002, p. 1.
  26. ↑ Maximilian Volmar: Market definition for multi-page online platforms , ZWeR 2017, 386 - 408.
  27. ↑ ECJ, judgment of July 3, 1991, Az. 62/86, full text = Sig. 1991, I-3359, Rn. 60 - AKZO .
  28. ↑ Dominic Ponattu, Andrew Sachs, Heidrun Weinelt, Alexander Sieling: corporate concentration and wage ratio in Germany. An analysis at the branch level between 2008 and 2016. Ed .: Bertelsmann Stiftung. 2018, ISSN  2625-9443 ( bertelsmann-stiftung.de [PDF; accessed on October 16, 2019]).
  29. ↑ Study: The market power of a few companies brings disadvantages for many employees. In: Handelsblatt. November 12, 2018, accessed September 6, 2019 .
  30. ↑ Service Industry : How Digital Super Corporations Promote Social Injustice. In: Spiegel Online. November 12, 2018, accessed September 6, 2019 .
  31. ↑ Study on the market power of individual companies: wages grow more slowly. In: Focus Money Online. November 12, 2018, accessed September 6, 2019 .