Monopsony (3.4.6)

Question 1

What is a monopsony?

Answer 1

Occurs when there is a single buyer in the market

Question 2

What are the three main characteristics of a monopsonist?

Answer 2

1. They are Wage makers
2. They are profit maximisers (pay suppliers as little as possible)
3. They purchase a large portion of the market supply provided by sellers

Question 3

What are the costs and benefits of monopsony power for firms?

Answer 3

Costs:
-Reputational damage for way treat suppliers
-Price pressure can cause conflict
-Supply chain issues could be caused by driving suppliers out of business
Benefits:
-Reduced costs of production = higher profits

Question 4

What are the costs and benefits of monopsony power for employees?

Answer 4

Costs:
-difficult to reconcile their ethics/values
Benefits:
-Higher profits= higher wages

Question 5

What are the costs and benefits of monopsony power for consumers?

Answer 5

Costs:
-Quality of product may decrease as suppliers try to cut their own costs
Benefits:
-Lower average costs= lower prices =higher consumer surplus

Question 6

What are the costs and benefits of monopsony power for suppliers?

Answer 6

Costs:
-Reallocate resources to be more profitable leading to less supply in market
-Suppliers may be driven out of business
Benefits:
-Enhance supplier reputation by supplying to large well-know monopoly
-Increase sales volume