Market power ratio is one of the problems with as a tool to measure market power is that many small producers can band together and impact the quantity supplied in the market.
In economics, market power refers to the flexibility of a firm to influence the worth at which it sells a product or service by manipulating either the provision or demand of the merchandise or service to extend economic profit. In alternative words, market power happens if a firm doesn't face a superbly elastic demand curve and might set its worth (P) above marginal cost (MC) while not losing revenue.
This indicates that the magnitude of market power is related to the gap between P and MHz at a firm's profit-maximizing level of output. Such propensities contradict perfectly competitive markets, wherever market participants haven't any market power, P = MHz, and companies earn zero economic profit. Market participants in absolutely competitive markets are consequently said as 'price takers', whereas market participants that exhibit market power are named 'price makers' or 'price setters'.
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