Theme 3:4.6:Monopsont and contestability Flashcards
characteristics of monopsonies
when there is only one buyer in the market e.g.supermarkets and milk
profit maximisers pay suppliers as little as possible
monopsony diagram
Costs and benefits of monopsony to firm
purchasing economies of scale
higher profit
cost:ruins their reputation
Costs and benefits of monopsony to consumers
+:lower prices
-: quality could decrease with prices lower
Costs and benefits of monopsony to employees
potential higher wages due to high profit
Costs and benefits of monopsony to suppliers
lose out as they have to sell at very low price
define contestable market
where there is perfect knowledge of abnormal profits
characteristics of a contestable market
freedom of entry/exit
absence of sunk costs
best available technology
SR profit maximisers
examples of contestable markets
hotel market with AirBNB
taxi market with Uber
implications of a contestable market
new firms want to come in and snatch abnormal profits AKA hit and run competition.
can be prevented by limit pricing which reduces the incentive and prevents disruption in the market
sunk costs
costs that cant be recovered once the firm has left the market
what is the degree of contestability measured by?
the extent to which the gains of entering the market outweigh the costs of entry
what do monopsonists do
reduce employment and wages
trade union impact in a monopoly market
bargains a higher wage for workers
what does a strong trade union make a monopsonist firms
a wage taker
