Monopsony

Monopsony

A market structure where multiple sellers face a single buyer e.g. the government.

Monopsony Power

This is where there are only a few dominant buyers in the industry e.g. Supermarkets. 

Features of a Monopsony

• Price makers - the single buyer has significant power over the prices they pay.

• They can pay a price which would be lower than in a more efficient market - some firms will join to act as a single buyer.

Trade Unions in Monopsony

An organised group of employees who work together to represent and protect the rights of workers - This means the workers act as one supplier to their buyer! 

Advantages of Monopsony

• SNP as AC can be kept low, can be used for investment/ R&D - two efficiencies – productive and dynamic. 

• Consumers – lower prices as cost savings can be passed on. 

• In the labour market, Firms (g’ment) - lower wages which keep costs low, more funds available for other areas in the public sector, potentially lower taxes as lower wage bill. 

Disadvantages of Monopsony

• Firms – investigation by the CMA if anti-competitive practices are being used. 

• Suppliers – revenue reduced which may push some firms out of business low SNP means only normal profits and therefore a lack of scope for R&D/ investment.  

• In the labour market, Employees – lower wages and lower standards of living for public sector workers, poor working conditions, emigration to other countries.

What is Marginal Revenue Product and how is it used in Monopsony

Additional revenue generated from each additional unit of labour:

• In a competitive labour market, a firm will hire workers at the competitive market wage level where demand=supply. 

• In a monopsony market, a firm will hire workers and pay wages at a low level as this is where they profit maximise. 

• A solution of national minimum wage can be in introduced. 

The Gig Economy

Recent trends towards self-employment and very flexible labour practices. in practice, workers in the gig economy can easily face a monopsony employer. 

For example, Uber drivers have little control over rates of pay and must meet strict criteria from Uber. In theory, they could work elsewhere but in practise it is difficult to replicate their job.