3.4.6 monopsony power

characteristics + conditions for a monopsony to operate: single buyer

• A monopsony is characterized by a single dominant buyer in a particular market or industry. This buyer has substantial market power + controls a significant share of the total D for a specific product/labour.

characteristics + conditions for a monopsony to operate: limited substitute buyers

• A key condition for a monopsony to exist is the absence of readily available substitute buyers for the g/s it purchases. This limits the options for sellers to find alternative customers.

characteristics + conditions for a monopsony to operate: price maker

• The monopsonist has the ability to set the price it’s willing to pay for the g/s it buys. It can do so bc sellers have limited alternatives, + the monopsonist's D significantly affects market prices.

characteristics + conditions for a monopsony to operate: downward-sloping S curve

• The S curve facing the monopsonist is downward-sloping, meaning that sellers are willing to provide more g/s at lower prices. This gives the monopsonist the power to negotiate lower prices with suppliers.

characteristics + conditions for a monopsony to operate: barriers to entry

• In some cases, barriers to entry/factors that discourage new buyers from entering the market may contribute to the existence of a monopsony. These barriers cld incl. regulatory restrictions, high start up costs, or EoS that favour larger buyers.

cost to firms

• Monopsony power allows the buyer to negotiate lower prices for inputs, benefiting the firm by reducing production costs.

• However, if the monopsony exploits its market power excessively, it can harm suppliers, potentially leading to reduced S, lower product quality, or the exit of smaller suppliers from the market.

benefit to consumers

• Consumers may benefit from lower prices for the final g/s produced by the monopsony, as lower input costs can translate into lower prices for consumers.

• However, if the monopsony drives suppliers out of business/reduces the quality of inputs, it could result in limited product variety + potentially higher prices in the LR.

benefit to employees

• Employees may benefit from a monopsony's presence if it offers competitive wages + working conditions due to its ability to negotiate lower input costs.

• However, in cases where the monopsony uses its power to depress wages, it can lead to lower incomes + reduced job opportunities for workers.

benefit to suppliers

• Suppliers may benefit from the stability + reliability of a monopsony as a consistent buyer.

• However, they may face pressure to accept lower prices, reduced profit margins + less bargaining power.