3.4.6 Monopsony

• Monopsony market structure:

  When there is one buyer in the market (contrasts monopoly where there is only one seller).

  E.g. NHS is close to a monopsony in the UK drugs market.
• The impact of monopsony on price and quantity in a market

  A monopsonist will use its market power to drive down the prices it pays its suppliers.

  Consequently, suppliers will be willing to supply a lower quantity.
• Adv (+) and disadv (-) of monopsony for the monopsonist

  (+) Lower costs -> higher profits

  (-) If price is too low, supplier may leave the market.
• Adv (+) and disadv (-) of monopsony for the supplier

  (+) If the supplier is a monopoly seller, they may have sufficient market power to counteract the monopsonist

  (-) Lower prices -> lower rev -> lower profits

  (-) May have to cut product quality
• Adv (+) and disadv (-) of monopsony for consumers

  (+) Lower costs for the monopsonist may be passed onto consumers through lower prices

  (-) Suppliers may reduce supply due to the lower prices, so there may be less of the good available

  (-) May suffer from lower quality products
• Adv (+) and disadv (-) of monopsony for employees

  (+) Employees of the monopsonist may receive higher wages as monopsonist saved money through buying raw materials at lower prices (lower costs)

  (-) Employees of the supplier may lose out as the supplier reduces quantity supplied so employs fewer workers.