3.4 Market Structures Flashcards
What is monopsony power?
Buying power - negotiation of lower prices
What is a good monopsony power example?
Supermarkets have monopsony power over agricultural products
What are the benefits of monopsony power?
Brings down the unit costs, higher profit, investment for dynamic efficiency
How would monopsony power be shown on a diagram?
A downward shift in costs
What is an example of monopsony power that means consumer welfare has improved?
The NHS uses its high bargaining power to cut prices of dug treatments
How might monopsony power damage consumer welfare?
Squeeze lower prices output of suppliers, consumers faced with less choice or higher price in the long run if there is an exit effect of the suppliers. In labour markets monopsony power leads too lower wages
It’s important to think of monopsony power in the context of…
Labour markets
What is the monopsony power case study where suppliers may have left the market due to the squeezing of prices?
Milk farmers
What are some strategies to counter monopsony power?
regulation (eg grocery code adjudicator) , competition policy might block some mergers, establishment of co-operatives, tougher industry standards on ethical sourcing of supplies, using tech to sell direct to consumers
What is an example of a milk producer cooperative organised to prevent unfair monopsony power prices?
Arla
Oligopoly: What are the costs of cartel behaviour?
Damage to consumer welfare (loss of allocative efficiency), efficiency reduction (x inefficiency less incentive to innovate) reinforces monopoly power and reduces market contestability
What are the benefits of collusion?
faster acceleration of new technology (pharmaceuticals), fairer prices for producers in lower income countries competing with powerful monopsonistic cooperations, profits have value (capital investments and r and d)
What are the two types of collusion?
Overt (open)
What is an example of overt collusion?
OPEC (organisation of petroleum exporting countries)
What is an example of covert collusion?
LIBOR
What is an example of price leadership for overt collusion?
Saudi Arabia (change their prices before other OPEC nations)
What makes a cartel more likely to succeed?
The cartel has a large market share (eg OPEC had 80% of world crude oil reserves), barriers to entry must be high, few members, share of information in terms of prices, products are homogeneous, demand is relatively stable, firms have similar production costs
