3.4.6 Monopsony

• Characteristics and Conditions for a Monopsony to Operate - 1

  Single Buyer: A monopsony is characterised by a single dominant buyer in a particular market or industry. This buyer has substantial market power and controls a significant share of the total demand for a specific product or labour.

  
  

  Limited Substitute Buyers: A key condition for a monopsony to exist is the absence of readily available substitute buyers for the goods or services it purchases. This limits the options for sellers to find alternative customers.
• Characteristics and Conditions for a Monopsony to Operate - 2

  Price Maker: The monopsonist has the ability to set the price it is willing to pay for the goods or services it buys. It can do so because sellers have limited alternatives, and the monopsonist's demand significantly affects market prices
• Characteristics and Conditions for a Monopsony to Operate - 3

  Downward-Sloping Supply Curve: sellers are willing to provide more goods or services at lower prices. This gives the monopsonist the power to negotiate lower prices with suppliers.

  
  

  Barriers to Entry: In some cases, barriers to entry or factors that discourage new buyers from entering the market may contribute to the existence of a monopsony.

  These barriers could include regulatory restrictions, high startup costs, or economies of scale that favour larger buyers.
• Costs/Benefits of a monopsony - to firms

  Monopsony power allows the buyer to negotiate lower prices for inputs, benefiting the firm by reducing production costs.

  
  

  However, if the monopsony exploits its market power excessively, it can harm suppliers, potentially leading to reduced supply, lower product quality, or the exit of smaller suppliers from the market.
• Costs/Benefits of a monopsony - to consumers

  Consumers may benefit from lower prices for the final goods or services produced by the monopsony, as lower input costs can translate into lower prices for consumers.

  
  

  However, if the monopsony drives suppliers out of business or reduces the quality of inputs, it could result in limited product variety and potentially higher prices in the long run.
• Costs/Benefits of a Monopsony - to employees

  Employees may benefit from a monopsony's presence if it offers competitive wages and working conditions due to its ability to negotiate lower input costs.

  
  

  However, in cases where the monopsony uses its power to depress wages, it can lead to lower incomes and reduced job opportunities for workers.
• Costs/Benefits of a Monopsony - to suppliers

  Suppliers may benefit from the stability and reliability of a monopsony as a consistent buyer.

  
  

  However, they may face pressure to accept lower prices, reduced profit margins, and less bargaining power.