Monopsony

Question 1

What is a monopsony?

Answer 1

A single buyer

Question 2

What is monopsony power?

Answer 2

The ability to control the prices they pay suppliers

Question 3

What is the effect of monosposonys on suppliers?

Answer 3

• Monopsonys will force down price resulting in producers loosing as the low prices will lead to lower revenue and profits
• Can lead to lack of investment due to less retained profit
• Firms may leave the industry if price drops below AVC
• May look to cut costs leading to lower quality products

Eval:
* May force firms to be more efficient
* Suppliers may merge to gain countervailing power where there is one powerful buyer and one powerful supplier

Question 4

What are the effects on the monsposny?

Answer 4

Effects on monopsony
* Lower costs lead to higher profits
* Lower AC allows firms to use limit pricing

Question 5

What are the effects on consumers?

Answer 5

For consumers
* Lower prices as the monopsony passes on the lower costs
* Increase in consumer surplus

Eval:
* Quality might fall
* Firms might not pass on lower costs