Market Structures - Monopsony

Question 1

What does a monopsony have?

Answer 1

A monopsony has buying or bargaining power in their market.

Question 2

What does the buying power that a monopsony has allow it to do?

Answer 2

Their buying power allows the monopsony to exploit their bargaining power with a supplier to negotiate lower prices.

Question 3

Give three examples of monopsony’s.

Answer 3

• Food retailers have power when sourcing/purchasing supplies direct from farmers, milk producers, wine growers and other suppliers
• The government is a major buyer e.g. in military procurement
• The UK National Health Service is another example of a dominant buyer of prescription drugs from the pharmaceutical companies.

Question 4

Give one benefit to the firm of being a monopsony?

Answer 4

Monopsony power allows bigger firms to achieve purchasing economies of scale leading to lower long run average costs.

Question 5

Give one benefit to the consumer of monopsony’s?

Answer 5

Consumers benefit from lower prices.

Question 6

Give two disadvantages of monopsony power?

Answer 6

• Businesses may use their buying power to squeeze lower prices out of suppliers. This leads to lower profits for firms in the supply chain and in extreme cases, they could be forced to cease production.
• Consumers might be faced with less choice or higher prices in long run if some suppliers leave the market