Monopsony

Monopsony

Courses Info

Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes

 

Monopsony – a market condition in which there is only one buyer for a good / service but several suppliers. Therefore, the buyer is able to set the demand and controls the price

 

Monopsony in the real world

  • Labour Market – occurs when there is a dominant employer but several employees existing in the labour market. An example of this is the Government being the sole employer for civil servants and police officers
  • Firms always have a degree of Monopsony power due to geographical and occupational immobilities
  • Gig Economy – recent trends toward self-employment; workers in a Gig Economy can easily face a monopsony employer
  • Supermarkets – possess monopsony power when buying food and agriculture from farmers

 

Advantages of Monopsony

  • Suppliers cannot overcharge as the buyers possess the power; this allows firms to make more profit
  • Consumers may experience lower retail prices as firms incur a reduction in their buying costs
  • In situations where there is a monopoly supply of resources, monopsony power can give power to buyers
  • Monopsony can generate higher profits which could be used to invest into R&D, innovation and new technology

 

Disadvantages of Monopsony

  • Higher profits generated may lead to inequality and lower wages of workers
  • Monopsony acts as a barrier to entry which could restrict the variety and choice of products available to consumers
  • Some smaller suppliers may be forced out of business due to other larger suppliers making more profit from the buyer

 

Quick Fire Questions

1. Define ‘Monopsony’ (2 marks)

2. Identify and explain two real life examples of where a Monopsony may occur (4 marks)

3. Explain four advantages of a Monopsony (8 marks)

4. Explain three disadvantages of a Monopsony (6 marks)

 

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