Monopsony
A monopsony is a market structure where there is only one dominant buyer, or monopsonist, that controls the majority of the market for a particular product or service. In a monopsonistic market, the monopsonist has the power to set the price that it pays to suppliers and to dictate the terms of trade. Continue Reading Below
About Monopsony
A monopsony is a market structure where there is only one dominant buyer, or monopsonist, that controls the majority of the market for a particular product or service. In a monopsonistic market, the monopsonist has the power to set the price that it pays to suppliers and to dictate the terms of trade.
Think of it like a large chain store that is the only major buyer of a particular product, such as bananas. Because the chain store is the only major buyer, it has the power to set the price it pays to banana farmers and to dictate the terms of trade. The chain store may use its bargaining power to pay low prices to farmers, and farmers may have no choice but to accept these low prices because the chain store is their only major customer.
In a monopsonistic market, the dominant buyer has the power to dictate prices and terms, and suppliers have limited bargaining power. This can result in lower prices for the monopsonist, but it can also lead to lower prices and reduced income for suppliers, who may struggle to make ends meet. Consumers may benefit from lower prices, but they may also face lower quality products or reduced availability of products as suppliers are unable to invest in their businesses.
It's important to note that monopsonies can have both positive and negative effects on the market, and that government intervention and competition policy may be necessary to promote competition and prevent monopsonies from forming.
