MONOPSONIES

Question 1

What is a pure monopsony?

Answer 1

Where there is 1 buyer and many sellers.

Question 2

What are is an example of a monopsony?

Answer 2

Network rail buys all rail track maintenance equipment in the UK

Question 3

What are the benefits of a monopsony for the monopsonist?

Answer 3

Higher profits through lower costs

Question 4

What are the costs of a monopsony for a monopsonist?

Answer 4

1. Disrupted supply from strikes and boycotts
2. Investigation from CMA
3. Negative brand image

Question 5

What are the advantages of a monopsony for consumers?

Answer 5

Lower prices ( if passed on by the monopsonist)

Question 6

What are the advantages of a monopsony for employees?

Answer 6

Lower costs from suppliers may lead to higher wages at the monopsonist.

Question 7

What are the disadvantages of a monopsony for consumers?

Answer 7

Less choice as suppliers forced out of business in LR or lower quality if suppliers cut corners to reduce costs

Question 8

What are the disadvantages of a monopsony for employees?

Answer 8

Employees of the supplier could lose their job.

Question 9

What are disadvantages of a monopsony for suppliers?

Answer 9

1. Suppliers will receive lower prices and may go out of business
2. Overall output to the market will go down

Question 10

Why is govt intervention needed for monopsonies?

Answer 10

Monopsonies can use their power to exploit suppliers leading to :
1. Bankruptcy for suppliers
2. Job losses at suppliers
3. Poorer quality if costs are cut

Question 11

How can the govt intervene in monopsonies?

Answer 11

1. Fines for exploiting suppliers
2. Min prices to avoid exploitation
3. Reduce barriers to entry to ensure challenges to monopsony
4. Block mergers which provide monopsony power

Question 12

What are some issues with govt intervention in monopsonies?

Answer 12

1. Do regulators have enough resources to investigate exploitation
2. Fines need to be sufficiently high to deter exploitation
3. Min prices could stop competition - asymmetric info could make this difficult + regulatory capture could lead to low minimums
4. In natural monopolies competition may not be desirable