3.4.6 - monopsony Flashcards
what is monopsony power
This is where there is only one buyer in the market, and other than this it has the same basic characteristics as monopoly. They can prevent new firms entering the market and aim to profit maximise.
what are the costs and benefits of a monopsony buyer
Firms:
● The monopsony gains higher profits by being able to buy at lower prices. This increases the funding for research and development and leads to more return for shareholders.
● They achieve purchasing economies of scale, which will lower costs and increase profits.
● The NHS is a monopsonist buyer of pharmaceuticals, and this leads to significantly lower prices. As a result, they can invest more and pay for more treatments.
Consumers:
● Customers may gain from lower prices as reduced costs are passed on.
● It could lead to a fall in supply, since the business buys fewer inputs. The extent to which supply to customers will fall will depend on the price elasticity of supply in the
Employees:
● The supplier will sell less goods and so employ less people, whilst the monopsonist may employ fewer, more or the same amount of people since they have less inputs to use for production but their costs are also lower.
● Monopsonists may pay higher wages as they are making higher profits.
Suppliers:
● Suppliers will lose out as they will receive lower prices; less will be supplied leading to some firms leaving the market.
