3.4.6 - Monopsony

• Monopsony is a single buyer in the market
• Monopsony diagram:

  
• Costs 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.
• Benefits 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.
• Benefits 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.
• Benefits 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.