How does a monopsonist gain at its suppliers' expense?

Suppliers depend on the buyer for most of their sales, so they accept lower prices, longer payment terms and the risk of cancelled orders.

Explain one way in which monopsony power can benefit consumers.

Lower input prices can be passed on as lower shelf prices, so shoppers pay less than they otherwise would.

Why can monopsony power reduce supply in the long run?

Squeezed margins leave suppliers unable to invest and drive some out of the industry, so future output and quality fall.

What is a natural monopoly?

A natural monopoly exists where one firm can supply the whole market at a lower average cost than two or more could, because fixed costs are enormous relative to demand.

Edexcel A-Level Economics B 9EB0

Scarcity, Choice and Potential Conflicts

Topic overview Scarcity and the economic problem Choice, trade-offs and opportunity cost Profit maximisation, sales maximisation and satisficing Survival, market share and other business objectives Stakeholders and their objectives Stakeholder conflicts and corporate social responsibility

Enterprise, Business and the Economy

Topic overview The entrepreneur and creative destruction Adding value Entrepreneurial motives Factors of production Division of labour and specialisation The wider economic environment and the firm

Introducing the Market

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The Role of Credit in the Economy

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Revenue, Costs, Profits and Cash

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Impact of Globalisation on Global Companies

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Impact of Globalisation on Local and National Economies

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Global Labour Markets

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Inequality and Re-Distribution

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Competition and Market Power

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Market Power and Market Failure

Topic overview Cartels, collusion and restrictive practices Monopsony, natural monopoly and power in the labour market The implications of market failure for firms, consumers and government Promoting competition: anti-competitive practices, mergers and privatisation Regulating natural monopolies and protecting consumers and employees The Competition and Markets Authority and EU competition policy The benefits and costs of regulation

Market Failure Across the Economy

Topic overview Merit and demerit goods Factor immobility and information failure Externalities and social costs and benefits Environmental externalities and environmental change Policies to correct market failure

Macroeconomic Policies and Impact on Firms and Individuals

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Market Power and Market Failure

Monopsony, natural monopoly and power in the labour market

3 things to know
Papers 1 and 3

Overview

Monopsony power and UK examples, gains at suppliers' expense, benefits to consumers and long-run effects on supply, natural monopolies and examples, wasteful duplication of networks, falling average cost over the relevant output range, unregulated natural monopoly as market failure, monopsony in the labour market, trade unions, and monopolies of labour supply.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Evaluation

Assess the case for and against monopsony power, using a UK example.

Key term

What is meant by monopsony power?

Key term

Give an example of monopsony power in the UK economy.

Questions from this subtopic

Each one with the model answer underneath.

1
What is meant by monopsony power?
Model answer
Monopsony power is the power of a dominant buyer to force down the price it pays to its suppliers.
2
Give an example of monopsony power in the UK economy.
Model answer
The large supermarket chains buying from farmers and food producers, who have few other outlets of that size.
3
How does a monopsonist gain at its suppliers' expense?
Model answer
Suppliers depend on the buyer for most of their sales, so they accept lower prices, longer payment terms and the risk of cancelled orders.
4
Explain one way in which monopsony power can benefit consumers.
Model answer
Lower input prices can be passed on as lower shelf prices, so shoppers pay less than they otherwise would.
5
Why can monopsony power reduce supply in the long run?
Model answer
Squeezed margins leave suppliers unable to invest and drive some out of the industry, so future output and quality fall.
6
What is a natural monopoly?
Model answer
A natural monopoly exists where one firm can supply the whole market at a lower average cost than two or more could, because fixed costs are enormous relative to demand.

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