Monopsony Application and Features

Group 7
Group members Abhishek Paul Ritesh Sabale Hitesh Suryavanshi Miheer Shinde Faisal Mohammad

Definition
Monopsony is a state in which demand comes from one source. If there is only one customer for a certain good, that customer has a monopsony in the market for that good.

Monopsony and Features

A situation in which there is only one customer for a company's product also called buyer's monopoly. In economics, a monopsony is a market with only one buyer in the market, often an input market. This is analogous to the case of a monopoly in which there is only one seller in a market.

Monopsony
A market characterized by a single buyer of a product. Monopsony is the buying-side equivalent of a selling-side monopoly. While monopsony could be analyzed for any type of market it tends to be most relevant for factor markets in which a single firm is the only buyer of a factor. Two related buying side market structures are oligopsony and monopsonistic competition.

Monopsony
Monopsony power in essence gives a business the ability to control their unit cost of paying for an input, similar to how a monopoly can control their price. Sometimes with monopoly power in markets comes monopsony power because as well as selling the most they buy the most.

Effects
Since the buyer has many different options when it comes to making purchases, it is possible to demand lower pricing from any of the suppliers. If the pricing is too low, then some of the suppliers will be unable to earn enough profit off the sales to cover the costs of production. When this happens, the suppliers go out of business, and thus increase the rate of unemployment in the locations where the company maintained operations.

Single Buyer
Single Buyer: First and foremost, a monopsony is a monopsony because it is the only buyer in the market. The word monopsony actually translates as "one buyer." As the only buyer, a monopsony controls the demand-side of the market completely. If anyone wants to sell the good, they must sell to the monopoly.

No Alternatives
No Alternatives: A monopsony achieves singlebuyer status because sellers have no alternative buyers for their goods. This is the key characteristics that usually prevents monopsony from existing in the real world in its pure, ideal form. Sellers almost always have alternatives.

Barriers to Entry
A monopsony often acquires and generally maintains single buyer status due to restrictions on the entry of other buyers into the market. The key barriers to entry are much the same as those that exist for monopoly.

Government license or franchise Resource ownership Patents and Copyrights High start-up cost Decreasing average total cost

This can be illustrated with the example of a hair salon in a small town.

 The monopsonist's marginal cost of labour and supply curve

What if a union fixes a minimum wage?

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