Market power is "the ability profitably to maintain prices above, or output below, competitive levels for a significant period of time."
In perfectly competitive markets, market participants have no market power. A firm with market power can raise prices without losing its customers to competitors. Market participants that have market power are therefore sometimes referred to as "price makers," while those without are sometimes called "price takers."
A firm with market power has the ability to individually affect either the total quantity or the prevailing price in the market. Price makers face a downward-sloping demand curve, such that price increases lead to a lower quantity demanded. The decrease in supply as a result of the exercise of market power creates an economic deadweight loss which is often viewed as socially undesirable. As a result, many countries have antitrust or other legislation intended to limit the ability of firms to accrue market power. Such legislation often regulates mergers and sometimes introduces a judicial power to compel divestiture.
"Market power can be exercised in other economic dimensions, such as quality, service, and the development of new or improved goods and processes. It is assumed in this definition that all competitive dimensions are held constant except the ones in which market power is being exercised; that a seller is able to charge higher prices for a higher-quality product does not alone indicate market power. . . . A buyer could also exercise market power (e.g., by maintaining the price below the competitive level, thereby depressing output)."