3.4.6 Monopsony

Question 1

Monopsony definition?

Answer 1

• When a single buyer controls the market for a particular good/service

Monopsonists have a lot of bargaining power

Question 2

Monopsony power definition?

Answer 2

• When a buyer has a significant amount of power over suppliers to a small number of sellers in the market

Question 3

How are suppliers affected by monopsony power?

Answer 3

• Lower prices compared to competitive conditions
• Greater pressure to reduce costs - so quality likely to be reduced
• Tougher non-price conditions often imposed (e.g. delayed payments)
• Opportunity for LT contracts with monopsonist buyer = high profits = removed uncertainty
• Relationship between producer/buyer may be harmonious and not explotative

Question 4

How are monopsonists affected by monopsony power?

Answer 4

• ↓ prices = ↑ profit
• More likely to receive perks from suppliers e.g. payments to ensure suppliers products appear in all stores/locations
• ↓ product quality

Question 5

How are consumers affected by monopsony power?

Answer 5

• If monopsonist passes on cost savings = ↓ prices and ↑ CS
• Monopsonists can counter firms with monopoly power
• Supply may be constrained due to lower prices
• Choice may be constrained if suppliers are forces out of marker

Question 6

How are workers affected by monopsony power?

Answer 6

• ↓ prices = ↓ output = ↓ workers needed
• ↓ working conditions to reduce production costs (e.g. not meet NMW, not follow health and safety standards)