Who has the power in monopsony?

Monopsony power exists when a single buyer or an association of buyers can dictate the prices they pay to suppliers, or control other aspects of the relationship that exists between themselves and their suppliers.

What is monopsony and its examples?

A monopsony is when a firm is the sole purchaser of a good or service whereas a monopoly is when one firm is the sole producer of a good or service. The classic example of a monopsony is a company coal town, where the coal company acts the sole employer and therefore the sole purchaser of labor in the town.

Why is monopsony power bad?

A company or an allied group that controls most sales of a good or service can use that power to set prices at an arbitrarily high level. Without competition, markets wither, and consumers and business customers pay more. Like a monopoly, a monopsony can also result in higher prices and stagnating wages.

Is monopsony good or bad?

Not all monopsonies are bad, like natural monopolies a monopsony can be an efficient solution for a market such as the electricity market which benefits from one or a small number of large firms controlling the market. The firm sells its electricity to the grid at low prices for consumers to use.

How do you fix a monopsony?

There are a number of options available to partially address the monopsony power of scaled buyers in product markets – these might include:

1. Industry regulation and fines for exploitation of market power.
2. Competition policy to block some mergers and possibly break up monopoly businesses.

When does a buyer have monopsony power in a market?

A buyer has monopsony power if it faces an upward-sloping supply curve for a good, service, or factor of production. For example, a firm that accounts for a large share of employment in a small community may be large enough relative to the labor market that it is not a price taker.

How does monopsony affect the supply of Labor?

But, Mr. Manning notes that there are non-wage attributes to any job that, together with the cost of changing jobs, result in individual employers facing upward-sloping supply curves for labor and thus giving them monopsony power.

How does the minimum wage affect the monopsony model?

A minimum wage could increase employment in a monopsony labor market at the same time it increases wages. Some economists argue that the monopsony model characterizes all labor markets and that this justifies a national increase in the minimum wage.

Which is the counterpart of monopoly in a monopsony market?

A market in which there is only one buyer of a good, service, or factor of production is called a monopsony. Monopsony is the buyer’s counterpart of monopoly. Monopoly means a single seller; monopsony means a single buyer. Assume that the suppliers of a factor in a monopsony market are price takers; there is perfect competition in factor supply.