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Economics

Student Videos

Policies to Counter Monopsony Power

Level:
A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

In this revision video we consider some of the strategies that might be effective in controlling the monopsony power of businesses such as multinational coffee roasters and giant retailers including Amazon and the major supermarkets.

Policies to Counter Monopsony Power

A monopsony has buying power in their market and a monopsony can exploit their bargaining power with a supplier to negotiate lower prices.

For example, food retailers have power when purchasing direct from farmers, milk producers, wine growers and other suppliers.

The abuse of monopsony power can be a particularly difficult problem for smaller firms further down the supply chain – for example supermarkets who make late payments or send late cancellations to orders – the equivalent of ordering a meal only to walk out as it arrives at the table – which leaves growers with unsold stock which often has to be thrown away.

There are a number of options available to partially address the monopsony power of scaled buyers in product markets - these might include:

  1. Industry regulation and fines for exploitation of market power
  2. Competition policy to block some mergers and possibly break up monopoly businesses
  3. Establishing co-operatives among smallholder farmers
  4. Laws / tougher industry standards on ethical sourcing of raw materials
  5. Using technology to direct to consumers and therefore avoid the need to sell to an intermediary
Policies to Counter Monopsony Power

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