3.4 Market Structures

Question 1

What is monopsony power?

Answer 1

Buying power - negotiation of lower prices

Question 2

What is a good monopsony power example?

Answer 2

Supermarkets have monopsony power over agricultural products

Question 3

What are the benefits of monopsony power?

Answer 3

Brings down the unit costs, higher profit, investment for dynamic efficiency

Question 4

How would monopsony power be shown on a diagram?

Answer 4

A downward shift in costs

Question 5

What is an example of monopsony power that means consumer welfare has improved?

Answer 5

The NHS uses its high bargaining power to cut prices of dug treatments

Question 6

How might monopsony power damage consumer welfare?

Answer 6

Squeeze lower prices output of suppliers, consumers faced with less choice or higher price in the long run if there is an exit effect of the suppliers. In labour markets monopsony power leads too lower wages

Question 7

It’s important to think of monopsony power in the context of…

Answer 7

Labour markets

Question 8

What is the monopsony power case study where suppliers may have left the market due to the squeezing of prices?

Answer 8

Milk farmers

Question 9

What are some strategies to counter monopsony power?

Answer 9

regulation (eg grocery code adjudicator) , competition policy might block some mergers, establishment of co-operatives, tougher industry standards on ethical sourcing of supplies, using tech to sell direct to consumers

Question 10

What is an example of a milk producer cooperative organised to prevent unfair monopsony power prices?

Answer 10

Arla

Question 11

Oligopoly: What are the costs of cartel behaviour?

Answer 11

Damage to consumer welfare (loss of allocative efficiency), efficiency reduction (x inefficiency less incentive to innovate) reinforces monopoly power and reduces market contestability

Question 12

What are the benefits of collusion?

Answer 12

faster acceleration of new technology (pharmaceuticals), fairer prices for producers in lower income countries competing with powerful monopsonistic cooperations, profits have value (capital investments and r and d)

Question 13

What are the two types of collusion?

Answer 13

Overt (open)

Question 14

What is an example of overt collusion?

Answer 14

OPEC (organisation of petroleum exporting countries)

Question 15

What is an example of covert collusion?

Answer 15

LIBOR

Question 16

What is an example of price leadership for overt collusion?

Answer 16

Saudi Arabia (change their prices before other OPEC nations)

Question 17

What makes a cartel more likely to succeed?

Answer 17

The cartel has a large market share (eg OPEC had 80% of world crude oil reserves), barriers to entry must be high, few members, share of information in terms of prices, products are homogeneous, demand is relatively stable, firms have similar production costs