Question regarding pricing power

CFA Level I Equities
#1

Hi I have a question from Schweser’s concept checkers ( Reading #50) .

The question states:

Greater pricing power is most likely to result from greater:

a) Unused Capacity

b) Market concentration

c) Volatility in market share.

The answer provided was B. Why can’t the answer be a?

Is unused capacity the same as undercapacity? When there is undercapcacity, doesn’t demand outstrip supply? And if demand outstrips supply, the seller will have greater pricing power? This is contrasted to overcapacity which is the case where too much of a good is produced and the sellers have to resort to price competition to sell their good. So in overcapacity, the sellers do not have pricing power.

In the case of market concentration, I think i read that it is the relative market concentration that determines the pricing power.

So I guess in this question option b can be accepted as well. But can someone tell me why it is the preferred answer (rather than option a)??

THANKS ALOT!

#2

Howdy.

Nope. It’s overcapacity. (“We have the ability to produce 1,000 of these things, but people will only buy 700; we have unused capacity of 300.”)

My pleasure.

#3

S2000 was right.

a) means seller has excess capacity and supply > demand, lower pricing power

b) think about samsung and apple, the smartphone market is so concentrated that they have now better pricing power because people are buying one or the other.

c) market share volitility only means company may need to reduce their prices to attract customers to maintain or gain market share, so they don’t have pricing power.