Economic power - Definition and Overview

There is no agreed-upon definition of power in economics. At least four definitions of power have been used:

• purchasing power, i.e., the ability of any amount of money to buy goods and services. Those with more assets (or, more correctly, net worth) have more power of this sort. The greater the liquidity of one's assets, the greater one's purchasing power is.

• monopoly power, i.e., the ability to set prices or wages. This is the opposite of the situation in a perfectly competitive market, in which supply and demand set prices. See bargaining power.

• managerial power, i.e., the ability of managers to threaten their employees with firing or other penalties for not following orders. This exists if there is a cost of job loss, especially due to the existence of unemployment and workers' lack of sufficient assets to survive without working for pay.

• class power in Marxian political economy: under capitalism this refers to a situation where a minority (the capitalists) in society controls the means of production and thus is able to exploit the majority (the workers).

In general, those with more power also have more freedom than others and may be able to exploit others in society and/or cause some sort of market failure.