3.4.6: Monopsony Flashcards
What is a (pure) monopsony?
A market where there is only one buyer in the market.
What is monopsony power?
Where firms have some control over their suppliers.
What are the characteristics/conditions of a monopsony?
-Profit maximisers.
-Ability to negotiate lower prices with suppliers, as they are the only buyer.
-Ability to set the market price.
What are the benefits and costs of monopsonies for consumers?
+Lower prices for products as reduced costs are passed on.
+Counter-weight for monopolies.
-Fall in supply, since the business buys fewer inputs (depends on the PES of the market: if it is inelastic, there will be little fall in supply).
-Fall in quality as prices are driven down.
What are the benefits and costs of monopsonies for firms?
+Higher profits, as they are able to buy at lower prices. This increases funding for R&D.
+Purchasing economies of scale, which lowers costs and increases profits.
What are the benefits and costs of monopsonies for suppliers?
-Suppliers will lose out as they will receive lower prices; less will be supplied, leading to some firms leaving the market.
What are the benefits and costs of monopsonies for workers?
+Monopsonists may pay high wages to existing workers as they are making higher profits.
-The supplier and monopsonist will employ less people as they sell less goods.
What is an example of a monopsony?
NHS: buying pharmaceutical products for lower prices. They save money that can be invested into R&D, while covering more treatments within their budget. Consumers receive lower prices.
