3.4.6 Monopsony

Question 1

Define Monopsony

Answer 1

A monopsony is where there is a single or dominant buyer in a market

Question 2

What characteristics of monopsonistic markets?

Answer 2

• A single firm buying all output in a market

- No alternative buyers

Question 3

Give two examples of markets that have monopsony buyers

Answer 3

• The NHS is a monopsony buyer of nurses services

- Supermarkets have monopsony power when buying from farmers.

Question 4

What are the advantages and disadvantages to consumers of monopsony?

Answer 4

A monopsony buyer has large purchasing power, meaning that they can force down suppliers prices, and could pass these onto consumers in lower prices which would be an advantage to consumers. However, suppliers who are being squeezed on price may cut corners on quality which could affect the end consumer.

Question 5

What are the disadvantages and advantages to producers in monopsonistic markets?

Answer 5

The disadvantage to producers is that they have very little power in negotiations and have to accept prices and payment terms that are not advantageous to them. But at least they only have to deal with one customer.

Question 6

What are the advantages and disadvantages to suppliers/monopsonists themselves of monopsonistic markets?

Answer 6

Higher profitability as they can drive down costs and payment terms to their advantage. If they pass on the lower costs to consumers in lower prices, then they can operate limit pricing and protect or increase their market share from competitors or the threat of competition.