T3 - Monopsony Markets

What is a monopsony market

occurs when there is only one seller in a market, a pure monopsony market occurs when there is only one buyer in the market

said to have considerable buying power and can, to some extent, be the ‘price setter’ in the market

Conditions required for a monopsony power to occur

single firm buys most/all output in a market

sellers have few/zero alternative buyers to trade with

medium-to-high barriers to entry exist which prevent new firms entering the market

Characteristics of a monopsony market

buyer will usually gain a discount

lower price may force some producers out of the market

producers complain about earning only a small profit, delays in getting paid ‘unfair’ working conditions

workes, when faced with a single, powerful buyer of its labour, may form a Trade Union

What are the benefits of a monopsony market

firms can earn higher profits

the price of the final product may be lower

buyer may. need to counter to power of a monopoly

Costs of a monopsony market

seller recieve low price, delayed payment and unfair working conditions

sellers earn low profits

some sellers will likely leave the market

sellers are more vulnerable to the buying power of a monopsony firm when their product is perishable

Government policies to protect suppliers from monopsony power

minimum price

laws forcing buyers to pay their suppliers within a set time limit

govt introduce policies to make it more compeitive

govt could nationalise the monopsony firm to ensure producers recieve a fair price