Monopsonies

Monopsonies

A monopsony is a market in which there is a single buyer of a good/service. The monopsonist has buying/bargaining power in their market, which they can exploit to negotiate lower prices. They do this to maximise profits. 

Monopsonists exist is both product and labour markets. 

Where there is one buyer and many sellers. 

Examples: 

Amazon with books/e-books, Tesco with milk, Ryanair with airplanes, the NHS with prescription drugs. 

May occur due to:

Geographic immobility

The government being the sole employer

Unemployment making people desperate

Lack of information

Monopoly power in selling products 

Costs and benefits of monopsonies:

Benefits:

The monopsonist benefits as they decrease their costs and increase their profits

The consumers often benefit as monopsonists may pass on the lower costs in the form of lower prices. 

Costs: 

In a labour market - workers get lower wages and often there is less overall employment. 

The government receives less tax revenue (as lower wages = less tax) 

Government intervention 

Introduction of a National Minimum Wage

Supporting trade unions 

Regulation of employment conditions

Nationalisation - e.g railways. means government now has control over the prices paid to suppliers/workers (as well as prices set)