3.4.6- Monopsony

characteristics of monopsony

single buyer in the market

can prevent other buyers from entering the market and aim to profit maximise

firm will pay their suppliers the lowest price possible to minimise their costs and make the most of their position as the only buyer

this enables profit maximisation

diagrammatic analysis of monopsony

firms will produce where the cost to them mc, equals the value of good they receive at ar

if market was competitive they would produce where demand =supply, ac=ar, but its monopsony so supply where mc=ar

benefits of monopsony to firms

purchasing economies of scale, lowering average unit costs

cost minimisation allows for supernormal profits to be made, allowing for investment in r and d and innovation, long term dynamic efficiency

costs and benefits of monopsony to consumers

may gain from lower prices as lower costs are passed onto the consumer

there may be a fall in quality as prices are driven down

cost and benefits of monopsony to employees

supplier will sell fewer goods so will reduce the number of employees

monopsonists may pay higher wages due to higher profits

costs of monopsony to suppliers

lose out as payed lower prices, so revenue and supply falls, leading to subnormal profit and some firms leaving the market in the long run