What is the meaning of a Monoposony market and its advantages
The term monopsony speaks about the buyer in a market dealing.
Monopsony refers to a market condition in which there is only one buyer in the market dealing which is referred to as the monopsonist. However, such markets may have many suppliers.
Monopsony is often referred to as a buyer’s monopoly because in a monopoly market there exist just one supplier.
Under a monopsony, the market is controlled by a sole big buyer and holds a unique position which gives him the power to dominate.
For example – A large firm in a small town providing the large number of jobs in a particular field. The buyer has the power to set wages and quality levels of the goods or services.
In a monopsony market, the sellers are bound to adhere to the buyer’s dominance who controls the market for particular goods or services.
This is because the buyer dominates in setting up the prices and quality levels of such goods and services and without that buyer there wouldn’t be sufficient demand for the product to survive and their businesses to prosper.
Buyer- The Dominant-
Because in a monopsony, the buyer is the controlling body in the market, such buyer often uses his position to his advantage to negotiate and bargain for lower prices from the sellers in the market as many sellers compete to obtain business from such dominant buyer.
Advantages of Monopsony Power –
Because the monopsony how is the buying of bargaining power in a particular market it enables The monopsony the buyer to negotiate lower prices with the suppliers.
Being able to get products on reduced costs the profit margins of the buyer’s increases and enables their business to make more profits.
Monopsony exists in both labour markets and product markets.
Examples of industries where a Monopsony set up can be seen –
- A car rental firm seeking a contract with the manufacturer to supply cars for their business.
- Airlines when purchasing a new fleet of aircraft getting a favourable price.
- The government is a major buyer in many areas for example in buying military equipment and supplies and might be able to use its bargaining power while forming contracts for new military equipment.
- The health or the pharmaceutical sector can also serve as an example of a dominant buyer in the case as a purchaser of prescription drugs from pharmaceutical companies.
- Food retailers hold the power to dominate while purchasing supplies from milk producers, farmers, egg suppliers.
- The generators of electricity can negotiate lower prices with suppliers of coal and gas.
Dependency in Monopsony –
The suppliers in a monopsony market frequently engage in price wars to try to gain business from a single buyer.
As a result, the companies battle with each other and often get caught in a ‘race to the bottom’ during which they lose any power they use to have over the demand and supply.
The company in a monopsony market often end up totally at the mercy of the monopsonist.
Monopsony is one of the features of imperfect competition.
In a competitive market, imperfect competition exists where some of its features or sectors are not completely competitive. There may be too few buyers or too few sellers.
