3.4.6 Monopsony Flashcards
1
Q
What is a monopsony market?
A
- a market dominated by a single buyer
- a monopsonist has buying or bargaining power in their market = can be exploited to negotiate lower prices with suppliers
- the reduced cost of purchasing inputs increases their profit margin
- monopsony exists in both product + labour markets
2
Q
Examples of a monopsony
A
- supermarkets = have power when purchasing supplies from farmers
- Amazon = sellers want their products on Amazon
- government = military, or NHS which employs over a million people (labour monopsony)
3
Q
Advantages of a monopsony
A
- allows bigger firms to achieve purchasing economies of scale = lower ATC —> May be passed on in the form of lower prices which would increase consumer surplus
- lower purchasing costs = higher profits + increased return to shareholders - the extra profit might also be used for capital investment in research + development
- improved value for money for consumer - e.g. NHS can use its bargaining power to drive down the prices of routine drugs used in NHS treatments = cost savings allows for more treatments within the NHS budget
- a monopsonist can act as a counterweight to the market power of a monopolist helping to protect the interest of customers
4
Q
Disadvantages of a monopsony
A
- businesses may use their bargaining power to squeeze low prices out of suppliers = reduces profit of firms in supply chain + can cause lower incomes
