12- Monopsony

Question 1

Pure monopsony

Answer 1

A firm which is the sole buyer of resources or supplies.

Question 2

Benefits of monopsony

Answer 2

• Power in buying means firms can make profits and not get overcharged
• Lower buying costs might be passed onto lower retail prices for consumers
• High profits of monopsony could lead can be used for R&D investment
• Purchasing economies of scale- lower unit costs
• Monopsony power can give power to buyers in the face of a monopoly supply of resources

Question 3

Costs of monopsony

Answer 3

• Suppliers can be squeezed out of business
• Choice for consumers could be limited as monopsony acts as a barrier to entry for firms
• Higher profits for monopsony could mean higher inequality
• Firms might be investigated by the competition authorities