Market Power
MC firms have some degree of market power. Market power means that the firm has control over the terms and conditions of exchange. An MC firm can raise it prices without losing all its customers. The firm can also lower prices without triggering a potentially ruinous price war with competitors. The source of an MC firm's market power is not barriers to entry since they are low. Rather, an MC firm has market power because it has relatively few competitors, those competitors do not engage in strategic decision making and the firms sells differentiated product. Market power also means that an MC firm faces a downward sloping demand curve. The demand curve is highly elastic although not "flat".
Read more about this topic: Monopolistic Competition
Famous quotes containing the words market and/or power:
“I respect not his labors, his farm where everything has its price, who would carry the landscape, who would carry his God, to market, if he could get anything for him; who goes to market for his god as it is; on whose farm nothing grows free, whose fields bear no crops, whose meadows no flowers, whose trees no fruit, but dollars; who loves not the beauty of his fruits, whose fruits are not ripe for him till they are turned to dollars. Give me the poverty that enjoys true wealth.”
—Henry David Thoreau (1817–1862)
“I have seen in this revolution a circular motion of the sovereign power through two usurpers, father and son, to the late King to this his son. For ... it moved from King Charles I to the Long Parliament; from thence to the Rump; from the Rump to Oliver Cromwell; and then back again from Richard Cromwell to the Rump; then to the Long Parliament; and thence to King Charles, where long may it remain.”
—Thomas Hobbes (1579–1688)