Question

Characteristics of Monopsony

Answer 1

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1. Market power: A monopsony exists when there is only one buyer in a market, giving them significant market power to set prices and dictate terms to suppliers.

2. Limited competition: Due to the dominance of a single buyer, there is limited competition in the market, which can result in lower prices paid to suppliers and reduced incentives for efficiency and innovation.

3. Price setting: The monopsonist has the ability to determine the price it is willing to pay for goods and services, which can lead to suppliers accepting lower prices than they would in a competitive market.

4. Impact on suppliers: Suppliers may be forced to accept lower prices and less favorable terms from the monopsonist, which can lead to reduced profits, lower wages, and potentially even the exit of some suppliers from the market.

5. Market distortion: Monopsonies can distort market outcomes by reducing competition, limiting consumer choice, and potentially causing inefficiencies in resource allocation.

6. Consumer impact: While monopsonies may benefit from lower prices, these savings may not always be passed on to consumers, and the reduced competition in the market can lead to decreased product quality and variety.