Monopsony

Monopsony

1. A monopsony occurs when a firm has market power in employing factors of production. A monopsony means there is one buyer and many sellers.

2. British Sugar buys almost the entire sugar beet crop produced in the UK year

3. Benefits for Monopsony

   • Allows bigger firms to achieve economies of scale leading to lower long run AC
     • Lower purchase costs bring about higher profits and increased returns for shareholders
       • Used to fund R&D

4. Disadvantages for firm

   • Use buying power to squeeze lower prices out of suppliers. Causing lower profits and lower incomes
     • Battle between milk farmers to get a price from supermarkets that cover their AC

5. Benefits for Consumers

   • Consumers may gain lower prices
     • Supermarkets negotiate lower prices and pass them onto consumers

6. Disadvantages for employees

   • No other choice in market driving labour wages down
     • Teacher