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Economic power: Wikis


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There is no agreed-upon definition of power in economics. At least five 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.
  • Bargaining power, i.e., the ability of players in a bargaining game to influence the outcome, which is the players sharing rule for something (a prize, a cake, access to resources). See e.g. Muthoo, Abhinay 1999: Bargaining theory with applications, Cambridge University Press. To be able to bargain prices ( toggle prices, or rewards etc... ). Also see definition of bargaining.
  • Managerial power, i.e., the ability of managers to threaten their employees with firing or other penalties for not following orders or for not giving in satisfying reports. 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.
  • Short-side power: on markets that do not clear, those on the short side of the market have short-side power. They can deny to trade with any specific counterparty or attach conditions without suffering a significant loss themselves. Examples are banks in the market for credit or employers in some labor markets.

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.

It is worth noting that information is also a form of power, in the case of two agents entering into a contract; if one agent knows that their deal with turn out significantly better, or worse, than the other suspects, then they are exercising a form of informational economic power (see information asymmetry).

Galbraith on the nature of economic power

J. K. Galbraith, in talks about the nature of economic power in The Anatomy of Power (Boston: Houghton Mifflin, 1983), argues that power is "the possibility of imposing one's will upon the behavior of other persons."(p.2)[1][2]

He identifies three forms of power:

  1. Condign power: is the "ability to impose an alternative to the preferences of the individual or group that is sufficiently unpleasant or painful so that these preferences are abandoned." Alternatively, "Condign power wins submission by inflicting or threatening appropriately adverse consequences." (p5)
  2. Compensatory power: the "offer of affirmative reward--by the giving of something of value to the person so submitting. In the modern economy, the most important expression of compensatory power is, of course, pecuniary reward--the payment of money for services rendered, which is to say for submission to the economic or personal purposes of others." (p5)
  3. Conditioned power: "is exercised by changing belief. Persuasion, education, or the social commitment to what seems natural, proper, or right causes the individual to submit to the will of another or of others. The submission reflects the preferred course; the fact of submission is not recognized. Conditioned power, more than condign or compensatory power, is the functioning of the modern economy and polity, and in capitalist and socialist countries alike." (p5-6)

For Galbraith the sources of power lie in the "attributes or institutions that differentiate those who wield power from those who submit to it." These are:

  1. Personality: "the quality of physique, mind, speech, moral certainty, or other personal trait that gives access to one or more of the instruments of power", also called "leadership".
  2. Property: The "principle association of property or wealth, quite obviously, is with compensatory power. Property - income- provides the wherewithal to purchase submission." However, there is a secondary association with conditioned power too; for "wealth accords an aspect of authority...and this can invite conditioned submission." (p6)
  3. Organization: This is now the most important source of power. It is closely related to conditioned power. Whenever power is sought, or needed, then organization is required. It is found to emanate from the organization via persuasion and the subsequent submission to the purposes of the organization. (p6-7)


  1. ^ Galbraith, J.K. (1983), The Anatomy of Power, London:Hamish Hamilton.
  2. ^


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