Monopsony

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Monopsony
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Monopsony

• Situation where there is a single buyer and
  multiple sellers of a product
• Profit maximizing goal remains
• Coal mining valley origins
• Suppliers of
• Labor
• Auto parts

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Firm Costs

• Assume
• Limited options for sellers
• Good price communication among competing sellers
• MC is not Marginal Factor Cost (MFC)

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Firms Cost and Industry Supply
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Monopsony Cost Functions
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Demand

• Demand is downward sloping
• MRP MPL Px
• Profit Maximization implies MR MC
• MR MRP
• MC MFC
• Pay minimum to acquire inputs

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Demand
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Equilibruim
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Equilibrium
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Implications

• Monopsonistic Exploitation
• Value of versatility
• Importance of multiple customers (Dont put all
  your eggs in one basket)
• Importance of communicating prices
• More work?
• More money?
• Examples
• Ford, GM and Toyota on the web
• Beef packer plants