3.3.3.7 - monopsony

assumptions/conditions of a monopsony

- dominant buyer in the market, many sellers

- sellers restricted to the monopsonist, purchases large proportion of market supply

- profit maximisers

- the more market share a firm can buy, the more monopsony power it has

- where monopsony power is weak, other firms can resist their demands

costs/benefits of monopsony to firms

BENEFITS

- monopsony gains higher profits as they can buy at lower prices

- more funding for R&D and more return for shareholders

- purchasing EOS - lower costs and higher profits

COSTS

- may drive suppliers out of market with demands, supply chain issues or damaged reputation

costs/benefits of monopsony to consumers

BENEFITS

- customers may gain from lower prices as reduced costs are passed on

COSTS

a fall in supply, since the business buys fewer inputs

- extent to which supply will fall depends on the price elasticity of supply in the market: if it is inelastic, there will be little fall in supply

- fall in quality as prices are driven down

costs/benefits of monopsony to employees

BENEFITS

- higher profits = higher wages

COSTS

- unknown as monopsonist's purchase costs will be lower but they may purchase less of the good

- seller will sell less, employ fewer people