3.4.6 - monopsony

what is a monopsony

when there is a single buyer in the market

in lieu of a pure monopsony, which is very rare, what else can exist that is similar

having a dominant buyer in a market

3 examples of dominant buyers in a market

product	producer	buyer
milk	dairy farmers	supermarkets
war materials	UK companies	ministry of defence
nursing labour	ppl working	NHS

application about the milk

more than 1000 dairy farms in the UK have closed since 2013 bc supermarkets are paying farmers so little per litre of milk

application ab the labour

low wages in gov jobs = increasingly difficult to recruit

3 main characteristics of a monopsonist

wage makers (esp in industries where the gov is majority buyer of labour)

profit maximisers —> will pay suppliers as little as possible

purchase a large portion of market supply

good and bad about monopsony - firms

↓ costs of production

↑ profit

↓ reputation - treating suppliers badly

supply falls since producers don’t wanna supply at that price, which means costs rise

conflict between suppliers and buyers

driving suppliers out of business = supply chain issues in the long run

good and bad about monopsony - employees

↑ wages for employees of the monopsonist

ethical issues with how suppliers are treated

good and bad about monopsony - consumers

↓ average costs = ↓ prices for consumers

↓ product quality —> suppliers try to cut costs

good and bad about monopsony - suppliers

supplying to well known monopoly = ↑ reputation

secure contract = ↑ sales volume

may reallocate resources to more profitable industries —> ↓ market supply

↓ share price

driven out of business

what’s a bilateral monopoly

monopsonist faces a monopolist in a market (1v1)

good bc it balances the power and reduces monopsony/monopoly impact (both sides are powerful so can push back)

eg. trade unions sell teachers, government buys them