3.1.14 - Monopsony Flashcards
(23 cards)
What is a monopsony?
A single buyer in a market
Examples include Network Rail for track maintenance and the government for state schoolteachers.
What indicates monopsony power in a market?
Having only a few buyers
Supermarkets exemplify this when buying produce from farmers.
How does the proportion of market output affect monopsony power?
The higher the proportion a firm buys, the greater its monopsony power
A firm purchasing 60% has more power than one purchasing 30%.
What is assumed about monopsonists?
They are profit maximisers.
What happens in a pure monopsony regarding price negotiation?
A firm can negotiate lower prices because suppliers have nowhere else to sell.
Can firms with monopsony power negotiate lower prices even if not a pure monopsony?
Yes, if suppliers have few alternatives.
What can firms with monopsony power do in terms of market pricing?
They can set the market price.
What are the competitive market price and quantity symbols?
Pcomp and Qcomp.
What price does a monopsonist seek?
Pmon.
What quantity will suppliers be willing to supply under monopsony?
Qmon.
What is the effect of monopsony on market price and output compared to competition?
Both price and output are lower under monopsony.
What is allocative inefficiency in the context of monopsony?
Some units are not supplied where price is above marginal cost.
What is the primary disadvantage for suppliers in a monopsony?
Suppliers are likely to lose profits due to the monopsony power of supermarkets negotiating lower prices
This leads to a situation where farmers face price wars, ultimately reducing their profit margins.
How does monopsony power affect farmers’ profits?
Farmers lose out to supermarket price wars as supermarkets negotiate lower prices
This continuous downward pressure on prices can make it difficult for farmers to maintain profitability.
What is the impact of monopsony on employee wages?
Wages are likely to fall as the firm can negotiate lower wages being the only buyer of that type of labor
Low wages can lead to decreased motivation and productivity among workers.
What effect does monopsony have on employment levels in the industry?
There may be lower levels of employment in that industry due to reduced sales from suppliers
As suppliers sell less, they may need fewer workers.
How does a monopsony affect customers?
Customers may experience a negative impact as the buyer supplies less to the market
This reduced supply can lead to fewer choices and potentially higher prices.
What is allocative inefficiency in the context of a monopsony?
Allocative inefficiency occurs when the welfare of society is not maximized, leading to deadweight welfare loss
This inefficiency arises because the monopsony distorts market prices and quantities.
What is one benefit of monopsony for the firm?
The firm gains higher profits by buying at lower costs
Lower costs can lead to an increase in overall output as the supply curve shifts to the right.
How might a monopsony affect employee numbers?
More people may be employed by the monopsonist if they access lower costs and increase supply
Increased employment can occur if the firm expands due to cost savings.
What is the relationship between monopsony and consumer prices?
Consumers might receive lower prices if suppliers’ costs are reduced
However, this depends on the price elasticity of demand for the product.
Fill in the blank: The more _______ the product is, the less likely cost savings will be passed onto the customer.
inelastic
What is dynamic efficiency in the context of a monopsony?
Dynamic efficiency occurs if cost savings lead to more profit for investment in R&D and innovation
This can enhance the firm’s long-term performance and product development.
