We study the power spectrum of galaxies in redshift space, with third-order perturbation theory to include corrections that are absent in linear theory. We assume a local bias for the galaxies: i.e., the galaxy density is sampled from some local function of the underlying mass distribution. We find that the effect of the non-linear bias in real space is to introduce two new features: first, there is a contribution to the power which is constant with wavenumber, whose nature we reveal as essentially a shot-noise term. In principle this contribution can mask the primordial power spectrum, and could limit the accuracy with which the latter might be measured on very large scales. Secondly, the effect of second- and third-order bias is to modify the effective bias (defined as the square root of the ratio of galaxy power spectrum to matter power spectrum). The effective bias is almost scale-independent over a wide range of scales. These general conclusions also hold in redshift space. In addition, we have investigated the distortion of the power spectrum by peculiar velocities, which may be used to constrain the density of the Universe. We look at the quadrupole-to-monopole ratio, and find that higher order terms can mimic linear theory bias, but the bias implied is neither the linear bias, nor the effective bias referred to above. We test the theory with biased N-body simulations, and find excellent agreement in both real and redshift space, providing the local biasing is applied on a scale whose fractional rms density fluctuations are < 0.5.