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Pricing power refers to a company's ability to raise its prices without a significant loss in demand for its products or services. This capability is often a sign of a strong competitive advantage, such as a unique product, strong brand loyalty, or a dominant market position. Companies with substantial pricing power can often pass on increased costs to consumers, helping to maintain or improve profit margins.

Several factors contribute to pricing power. A highly differentiated product or service that few competitors can replicate is a key driver. Similarly, a strong brand that consumers trust and are willing to pay a premium for can grant pricing power. High switching costs, where it is difficult or expensive for customers to move to a competitor, also contribute. In some cases, market dominance, where a company has a very large market share, can enable it to set prices.

Conversely, companies operating in highly competitive markets with commoditized products typically have very little pricing power. In such environments, any attempt to raise prices can lead to a significant loss of customers to rivals. Economic conditions also play a role; during periods of inflation, even companies with some pricing power may find it challenging to pass on all cost increases without impacting sales. Analyzing a company's pricing power is a crucial aspect of fundamental investment analysis.