Monopsony and Natural Monopoly Flashcards
Define a Monopsony
Single buyer of a good or service
When will a monopsony have a significant amount of bargaining power
If a producer only has one or a few buyers
What happens when a monopsonist power has a large amount of bargaining power
Price and output are lower than under competitive conditions
How may consumers benefit from the presence of monopsony power
Monopsonists can counter the monopoly power producers in these markets - allows consumers to purchase goods and services at lower prices
Monopsony effect on suppliers
Lower prices -> Lower revenues and profit -> More likely to make losses and leave the market
Greater pressure to reduce costs
More likely to reduce quality to lower costs
Tougher non-price conditions are often imposed
Opportunity for long-term contracts with major buyers can be lucrative
Developing a relationship with a major buyer can remove uncertainty
Buyer/seller relationship may be beneficial to both parties
Monopsony effect on Monopsonists
Lower prices -> Higher revenue and profit
More likely to receive perks from suppliers to ensure suppliers’ products apply in all stores/locations
Product quality may fall if suppliers reduce quality in response to cost pressures placed on them by monopsonists
Monopsony effect on Consumers
Higher consumer surplus and lower prices if the monopsonist passes on some of the costs savings
Supply may be constrained due to the lower prices received by suppliers
Choice may also be constrained if suppliers are forced out of the market
Monopsony power on workers
Lower prices -> Suppliers reduce output -> Less workers needed
Work conditions may be worsened to reduce production costs - not meet minimum wage and health and safety standards
Define Monopsony Power
When a buyer has a significant amount of power over suppliers to a small numbers of sellers in the market
Where can a Natural Monopoly occur
In a market where there are substantial fixed costs of production but low marginal costs and substantial economies of scale
What are strategic barriers to entry
Barriers of entry erected by existing firms in the industry
What are structural/innocent barriers to entry
Natural barriers to entry
What are statutory barriers to entry
Barriers given force of law
