Reference no: EM132795277

1. In economics, market power is the ability of a firm to profitably raise the market price of a good or service over marginal cost. A firm with total market power can raise prices without losing any customers to competitors. A firm usually has market power by virtue of controlling a large portion of the market. However, highly concentrated markets may be contestable if there are no barriers to entry or exit, thus limiting the incumbent firm's ability to raise its price above competitive levels.

a. Technological change is constantly creating and destroying barriers to entry and is changing the competitive and monopoly landscapes, hence reducing the market power of the company. If you are running a monopoly firm, discuss strategies that you can apply to retain your company market power. Explain your answer using an appropriate example or case study.

b. Fewness of rivals means mutual interdependence, and mutual interdependence means uncertainty as to how those few rivals will react to a price change by any one of firm. If you are running a business in this type of market structure, and one of your rival cutting their price, what is your reaction? Explain your answer using an appropriate example or case study.