Monopsony

Question 1

What is a monopsony?

Answer 1

Occurs when there is only 1 buyer in the market but multiple suppliers.

Question 2

What are the characteristics of a monopsony?

Answer 2

• Only 1 buyer
• High barriers to entry
• Price control
• Profit maximisers

Question 3

What are the conditions necessary for a monopsony?

Answer 3

High barriers to entry to prevent others entering the market

Question 4

What are the costs and benefits to firms?

Answer 4

+ Reduced costs of production (due to market power), leading to higher profits.

• Reputational damage for the way they treat suppliers
• Continual price pressure on suppliers can result in conflict.
• In the long run may drive their suppliers out of business.

Question 5

What are the costs and benefits to consumers?

Answer 5

+ Lower average costs for the firm may lead to lower prices for consumers

• The quality of product may fall as suppliers attempt to cut their own costs in response to the price pressure from the monopsonist.

Question 6

What are the costs and benefits to employees?

Answer 6

+ The higher profits often result in higher wages.

• Employees may find it difficult to reconcile their ethics/values the way suppliers are treated

Question 7

What are the costs and benefits to suppliers?

Answer 7

+ Enhanced reputation due to supplying well-known monopoly
+ Supplying to a well-known monopoly may lead to opportunity to increase sales volume.

• Suppliers may seek to reallocate resources to more profitable industries
• Suppliers may be driven out of business