Greater pricing power is most likely to result from greater :
A) unused capacity B) market concentration C) volatility in the market share
i chose unused capacity ,however the correct answer is market concentration which is not intuitive for me.In highly concentrated markets don’t the firms have little pricing power such as in the case of an oligopoly ?
I think the right answer is B market concentration. Greater market concentration means leading firm(s) has/have more greater market share, which gives them pricing power. My point is also supported with characteristics of market structures. It says, perfect competition (many firms) do not have pricing power, while firms in oligopoly do have some to significant pricing power. Monopoly firms possess significant pricing power.
Appropriate reading: The Firm and Market Structure
i understand where you come from but relative market share matters as much as absolute market share.So they try to avoid price wars.However it is true that tight or unused capacity gives participants more pricing power as demand exceeds supply.