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Monopsony Power in Markets
Monopsony Power in Markets
Monopsony Power in Markets
Monopsony Power in Markets
Monopsony Power in Markets
Monopsony Power in Markets
Monopsony Power in Markets
Monopsony Power in Markets
Monopsony Power in Markets
Monopsony Power in Markets
Monopsony Power in Markets
Monopsony Power in Markets
Monopsony Power in Markets
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Monopsony Power in Markets

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Revision presentation on aspects of monopsony power in markets

Revision presentation on aspects of monopsony power in markets

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  • 1. A2 MicroMonopsony PowerTutor2u, Summer 2013
  • 2. Monopsony Power in Markets
  • 3. Effects of Monopsony on WelfareExamples: Monopsony• 1: Food retailers• 2: Electricity generators• 3: Coffee / cocoa roasters• 4: Amazon / Apple• 5: National Health Service
  • 4. Authors/AgentsWholesalersRetailersConsumersPublishers/DistributorsBookstoresChainsIndependentBookstoresSupermarketsInternetRetailersBook ClubsThe Book Market Supply Chain –monopsony power for major buyersGood to linkmonopsony powerwith verticalintegration
  • 5. Amazon – Market PowerVolume Value% %Chain bookshops* 29 36Independent bookshops 4 5Bargain bookshops 9 4Supermarkets 13 10Other shops 12 8Book clubs 6 6Internet-only retailers# 27 31* Waterstone’s, WHSmith, Blackwell# Internet only – e.g. Amazon, Play.comInternet Only Book Sales inUK (2011)MarketshareAmazon 70%The Book Depository 4-5%Play.com 3-4%Others (includingpublishers’ direct)22%
  • 6. Amazon’s Monopsony PowerHow does Amazon gain frommonopsony power?• 1: Cheaper prices frompublishers• 2: Charges a premium forsellers on Market Place• 3: Ability to under-cutother book retail channels
  • 7. Amazon and Economies of ScopeAmazon launched itsgroceries range inJuly 2010. It nowoffers in excess of150,000 products,from crisps tonappies, which aretypically sold in bulkDo you know thedifference betweenscale and scopeeconomies?
  • 8. The effect of monopsony on welfareWhat can producers do if facedwith monopsony power?• 1: Form co-operatives• 2: Lobby competitionauthorities• 3: Build retail channels e.g.small bookshops going online
  • 9. Monopsony Power in Labour Markets
  • 10. WageLabour(Employment)Monopsony Power in Labour Markets – Lower Wages?Monopsony EmployerMC labourLabourDemand(MRPL)LaboursupplyProfit maximising employmentlevel is where MRPL = MC labourThis gives employment of E1 – themarginal revenue product is W1But employer needs only pay anaverage weekly wage of W2 tohire these workersMonopsony employer using theirbuying wage to pay wages belowthe fair value of output from theiremployeesAn abuse of market power?A cause of relative poverty?W1W2E1
  • 11. Monopsony Power in Labour Markets – Minimum WagesWage Possible Effects of a Minimum WageLabour(Employment)MC labourLabourDemand(MRPL)LaboursupplyMinimum wage is a pay floorMinimum hourly pay rateMust be set above usual freemarket wageMonopsonist must pay this wageEmployment rises to E2More people employed at a higherwageOther factors affecting wages areheld constant in this analysisMinWageE2W2E1
  • 12. Get help from fellowstudents, teachers andtutor2u on Twitter:@tutor2u_econ

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