Market power is costly to build and, once established, it is typically persistent and difficult to change. This paper investigates the impact of large economic shocks (serious epidemics) on the redistribution of market power in manufacturing industries. Our model of firms’ dynamic decisions on production, pricing, and inventory demonstrates the importance of inventory stock and demand uncertainty to understand market power and implies a new measure of market power. We find that the 2003 SARS shock in China significantly reduced the market power of firms in the SARS-impacted areas, relative to others. The effect is long lasting. SARS also substantially increased the inventory and demand uncertainty of SARS-affected firms relatively, which contributed partially to the redistribution of market power.