Buyer's Monopoly

What Is a Buyer's Monopoly?

A buyer's monopoly, or monopsony, is a market situation where there is just a single buyer of a decent, service, or factor of production, and the sellers have no alternative except for to sell to that buyer.

Figuring out a Buyer's Monopoly

A buyer's monopoly is, as the term recommends, the buyer's partner of a monopoly, where there is a single seller. The resultant power to demand concessions from sellers gives the buyer a considerable competitive advantage.

A buyer's monopoly can exist across markets. A buyer has monopsony power in the event that there is a vertical slanting supply curve and just a single buyer. A buyer's monopoly can utilize its market power to capture extra profits for its owners. Achieving and keeping a monopsony offers an opportunity for a powerful competitive advantage to the buyer.

Cases of pure buyer's imposing business models are rare, however there are various situations in which a buyer can have a degree of market power. Generally, buyers are bound to have monopsony power in factor markets and more uncertain in product markets, where the seller is bound to have power and, now and again, monopoly power. These factor markets incorporate labor markets, as well as markets for capital goods and raw materials.

According to the point of perspective on the sellers, and conceivably across all social welfare, a buyer's monopoly can undesirable. Failures brought about by a lack of competition might lead to a deadweight loss in the economy as a whole in the event that the monopoly buyer is unable to segregate in the amount paid for various units of the great being purchased. At the point when this is the case, the monopoly buyer's marginal cost curve will be higher than the sellers' supply curve, and the buyer will pay a lower price to buy a smaller quantity than the people who operate in a more competitive environment.

The deadweight loss then happens due to unsold products and jobless resources that go to squander. This sort of situation might possibly happen with raw materials or labor, for example, for agricultural commodities or low-skilled labor, however just where the buyer is some way or another required to pay a uniform price for every unit.

At the point when the buyer can pay an alternate rate for extra units of the great or factor, then the buyer can purchase a comparable quantity as under competitive conditions and basically capture a larger share or the entirety of the gains from trade. In this situation, the buyer's marginal cost curve will be indistinguishable from the sellers' supply curve. This leaves no deadweight loss to society, yet leaves the sellers more regrettable off than under competitive conditions, in light of the fact that the buyer can remove some or all of their producer surplus. This situation is bound to be the case in markets for particular, skilled labor.

Employee compensation frequently fluctuates from one employee to another, and employers are effectively able to pay recently recruited employees more than existing employees. Since, by definition in a monopoly buyer situation, the existing employees have no other option except for to sell their labor to the monopoly buyer, they will have practically zero power to demand higher wages to match the fresh recruits.

On account of the labor market, a single large employer, for example, Walmart or a mining company, can be a buyer's monopoly in small or isolated towns. Even on the off chance that one employer doesn't totally rule the market, it might have market power over certain types of labor. For instance, a hospital might be the main large employer of specialists in a neighborhood market, and in this manner have market power in utilizing them.

A single-payer healthcare system would likewise qualify as a buyer's monopoly. Under such a system, the government would be the main buyer of wellbeing services. This would give the government considerable power over healthcare suppliers. It is once in a while contended that such a system would be advantageous to residents on the grounds that a government-controlled buyer's monopoly could gain adequate market power to drive down the prices charged for healthcare services. Pundits claim that a deadweight loss would happen assuming the quality or availability of healthcare declined due to the sanctioning of such a system.

Buyer's Monopoly versus Monopoly

There is a close similarity between the models of monopoly and a buyer's monopoly, or monopsony. Both are price makers: The monopoly is a price maker in its product market, that is to say, the market for completed products and services. The buyer's monopoly is a price maker in its factor market, or at least, the market for services of production, including labor, capital, land, and raw materials used to make completed products. Changes in price are inseparably tied to quantity regardless. The two firms set prices at which they can sell or purchase the benefit expanding quantity.

The monopoly sets the quantity in light of the marginal revenue curve and the price of products in view of the demand curve, while the monopsony sets the quantity in light of the marginal cost curve and prices of factors in view of the factor supply curve.

Features

• A buyer's monopoly offers a critical competitive advantage to the buyer to capture above normal profits and a larger share of the total gains from trade.
• The buyer's monopoly gains come to the detriment of the sellers and at times can result in a deadweight loss to society.
• A buyer's monopoly is when there is just a single buyer in a market for a decent and sellers have no alternative. It is otherwise called a monopsony.