Monopsony

Monopsony

1. Monopsonist has buying power in their market

   • Can be exploited to negotiate lower prices for goods bought from suppliers
     • ↓ Cost → ↑ profit margins

2. Exists in both product and labour markets

3. E.g. of monopsony power

   • Electricity generators can negotiate lower prices for coal and gas
   • Major food suppliers
   • Car-rental firm seeking a new manufacturer to provide a fleet of cars
   • Low-cost airlines getting a favourable price when purchasing a new fleet of aircaraft
   • British sugar buys almost all the beet crop produced in the UK
   • Amazon's buying power in the retail bookmarket
   • ↑ Power of China to buy mineral deposits from Africa
   • Govt. - e.g. military procurement

4. Improved value for money

   • E.g. bargaining power of the NHS in terms of routine drugs allows them to drive down the costs allowing for ↑ treatment elsewhere

5. Producer surplus

   • ↓ Lower input costs → ↑ profitability → ↑ capital investment and research

6. Act as a counter-weight to the powerful monopolists

   • E.g. NHS v Global pharmaceutical companies

7. Most supply chains require a mutually beneficial gain from trade to be maintained for the LR. If this is not achieved trade and exchange will break down

8. Growth of Fair Trade label

   • Shows impact of consumer pressure on a monopsony
     • Boosts social welfare and thus benefits the wider economy