Monopsony

Question 1

Define a monopsony

Answer 1

• Where there is one significant buyer within a market, often with high bargaining power

Question 2

What are some characteristics of a monopsony

Answer 2

• Price setting power
• High bargaining power
• Imperfect information

Question 3

What are the benefits of a monopsony to firms -

Answer 3

• Lower AC and MC -> Leads to greater profit margins -> Greater levels of SNP can be used towards dynamic efficiency or capital investment

Question 4

What are the costs to incumbent firms as a result of monopsony power

Answer 4

• Legal implications -> may negate the lower profit margins or may even increase MC and AC as a result from original cost curves.
• Brand reputation

Question 5

What are the benefits to consumers as a result of monopsony power

Answer 5

• Lower prices as consumers may experience cost savings being passed onto them -> Increases disposable income and may have positive effects on income inequality.

Question 6

What are the negatives as a result of monopsony power to consumer

Answer 6

• May experience reduced quality of G&S as suppliers do not have profits to innovate

Question 7

What are the benefits as a result of monopsony power to employees

Answer 7

• Higher job security as lower costs can enable firms to achieve stability

Question 8

What are the negatives as a result of monopsony power for employees

Answer 8

• May lead to lower wages as suppliers profits are being squeezed
• Working conditions for employees may decrease as suppliers may take cost cutting action

Question 9

What are the positives as a result of monopsony power for suppliers

Answer 9

• Guaranteed demand

Question 10

What are the negatives as a result of monopsony power for suppliers

Answer 10

• May lead to dependence, may reduce bargaining power in the long term
• Lower revenues / profits