Monopsony in Product Markets
A Monopsony in economics refers to a situation where one firm dominates the purchasing of a product in a market. Such Monopsonies are common within the economy, as exemplified by such companies as Spotify which dominate the purchase of streaming music from content creators, or large supermarkets like Tesco and Sainsbury’s whose purchase of products from suppliers such as milk, butter, or meat account for a large share of total demand for these products. Despite Monopsony being a prevalent feature of product markets, textbook treatment of Monopsony tends to focus on the Monopsony purchase of certain types of labour in factor markets — for example, the role of the NHS as a Monopsony employer of nurses in the UK. While Monopsony is important in labour markets, the case of product markets is also important and exhibits characteristics somewhat different from labour markets. Hence this paper focuses on the impact of Monopsony in product markets alone. It is shown that it is the basic effect of Monopsony to cause the price received by suppliers to be lower than that under competitive market conditions, while price to consumers is generally higher, and there is a deadweight welfare loss from Monopsony to society as a whole.
In the following paper Dr StJohn distinguishes between a Monopsony that sells into a competitive product market, and a monopsony that sells into a monopoly product market, with mathematical and diagrammatic analysis. He concludes that the effect of monopsony is to compound the welfare loss of monopoly, further raising the price paid by consumers in the product market.
