3.4.6 - Monopsony Flashcards
What is a monopsony ?
A monopsony is a market which there is one buyer and many sellers
Give an example of a monopsony
In the UK, the government is a monopsony when it comes to purchasing military equipment
What is monopsony power ?
Monopsony power is when a buyer has market power over a supplier/seller
What is the relation between monopsony and monopsony power ?
There are few markets with such pure monopsonies. However, there are several in which there are a number of buyers with monopsony power
What can you do when you have monopsony power ?
When you have monopsony power you sell at a lower price and therefore lower output in a monopsony - compared to the equilibrium price
What does the buyer have if they are the only buyer of the producer ?
They are likely to have a significant amount of bargaining power over price and other factors
What does more bargaining power mean for buyers ?
They are more likely to be successful when seeking price reductions
What will producers do if they are being offered low prices ?
They are incentivised to reduce output
Stakeholder analysis of suppliers in a monopsony
Lower prices compared to competitive conditions → lower revenues and profit → more likely to make losses → more likely to leave the market.
How can suppliers decrease their uncertainty with buyers ?
Developing a solid relationship with major buyer can remove a large amount of uncertainty.
The buyer/seller relationship may be harmonious and not exploitative.
Stakeholder analysis of monopsonists in a monopsony
Lower prices compared to competitive conditions → higher revenue and profit
More likely to receive perks from suppliers such as payments to ensure suppliers products appear in all stores/locations.
Stakeholder analysis of consumers in a monopsony
If the monopsonist passes on some of the costs savings, lower prices and higher consumer surplus.
What can lower prices given to suppliers lead to ?
Supply may be constrained due to the lower prices received by suppliers.
What can happen if suppliers are forced out the market ?
Choice is constrained
Stakeholder analysis of workers for the supplier in a monopsony
Lower prices → suppliers reduce output → less workers needed
Suppliers may worsen working conditions to reduce production costs e.g. not meet minimum wage, not follow health and safety standards
