Monopsony and contestable markets
הוצג| English | משמעות |
|---|---|
| monopsony/ˈmɒnəʊpsəni/ | מונופסוני |
| sunk cost/sʌŋk kɒst/ | עלות שקועה |
A decision you can investigate
- A supermarket chain is the only buyer of a region’s farm produce and the main local employer.
- Should it push the price it pays farms as low as possible?
Build the explanation
- A monopsony 买方垄断 is a market with a single buyer; monopsony power means one buyer can influence the price it pays. As an employer it faces the labour supply curve as its average cost of labour, so the marginal cost of labour lies above supply: attracting one more worker means paying more to all.
- It hires where marginal revenue product equals marginal cost of labour, then pays the wage on the supply curve, so employment and the wage are both below the competitive outcome. A contestable market has easy entry and exit with low sunk costs, so potential entrants discipline incumbents; limit pricing holds price below the short-run profit maximum to make entry unprofitable, unlike predatory pricing which prices below average variable cost to drive existing rivals out.
Work through the evidence
- With labour supply W = 2 + 0.05L and MRP W = 12 − 0.05L, a competitive market sets 2 + 0.05L = 12 − 0.05L, so 0.10L = 10: L = 100 workers at W = 7 per hour.
- The monopsonist’s marginal cost of labour is W = 2 + 0.10L; setting MRP equal to it gives 0.15L = 10, so L ≈ 67 workers, and the wage read off supply is W ≈ 2 + 0.05 × 66.7 ≈ 5.3 per hour.
With supply W = 2 + 0.05L and MRP W = 12 − 0.05L, what does a competitive labour market pay?
רמת קושי 1/5 · 100 מטבעות + בונוס קטן בהשלמה הראשונה היום
Supply = MRP gives 0.10L = 10, so L = 100 and W = 7; the 67/5.3 pair is the monopsony outcome.
Test the limits
- Monopsony gains for the buyer become consumer gains only if cost savings are passed on; suppliers may instead be squeezed into lower quality. Suppliers can organise into cooperatives and workers into unions to counter bargaining power.
- Contestability is a spectrum: high sunk costs make hit-and-run entry too risky, so even a concentrated market stays safe for incumbents; low sunk costs make even a monopoly behave competitively.
Where does the monopsonist’s wage come from?
רמת קושי 1/5 · 100 מטבעות + בונוס קטן בהשלמה הראשונה היום
MRP = MCL fixes employment; the wage is then read off the lower supply curve.
A single buyer makes consumers worse off.
רמת קושי 1/5 · 100 מטבעות + בונוס קטן בהשלמה הראשונה היום
Buyer power becomes a consumer loss only when cost savings are not passed on; contestability rests on entry conditions, not firm count.
Apply and explain your answer
- Does the monopsonist pay the wage where MRP equals the marginal cost of labour?
- No: that intersection fixes employment at about 67; the wage is read off the supply curve at that employment, about 5.3.
What makes hit-and-run entry credible in a contestable market?
רמת קושי 1/5 · 100 מטבעות + בונוס קטן בהשלמה הראשונה היום
Low sunk costs let an entrant enter, take profit and exit at little loss.
Use the terms precisely
- monopsony: A market with a single buyer, or one buyer dominant enough to set the price it pays.
- sunk cost 沉没成本: Spending that cannot be recovered on exit, such as industry-specific equipment.
Match the terms to their meanings.
רמת קושי 2/5 · 140 מטבעות + בונוס קטן בהשלמה הראשונה היום
Use each term for its stated economic relationship.
With labour supply W = 2 + 0.05L and MRP W = 12 − 0.05L, a competitive market sets 2 + 0.05L = 12 − 0.05L, so 0.10L = 10: L = 100 workers at W = 7 per hour. The monopsonist’s marginal cost of labour is W = 2 + 0.10L; setting MRP equal to it gives 0.15L = 10, so L ≈ 67 workers, and the wage read off supply is W ≈ 2 + 0.05 × 66.7 ≈ 5.3 per hour.
Monopsony gains for the buyer become consumer gains only if cost savings are passed on; suppliers may instead be squeezed into lower quality. Suppliers can organise into cooperatives and workers into unions to counter bargaining power. Contestability is a spectrum: high sunk costs make hit-and-run entry too risky, so even a concentrated market stays safe for incumbents; low sunk costs make even a monopoly behave competitively.
A monopsony is a market with a single buyer; monopsony power means one buyer can influence the price it pays. As an employer it faces the labour supply curve as its average cost of labour, so the marginal cost of labour lies above supply: attracting one more worker means paying more to all.
Write from 10 workers
- Labour supply is a wage of 10 plus L. Marginal revenue product is 40 minus L.
- Compare the competitive employment with the monopsony employment. Read the monopsony wage from the supply curve.
The supply wage is 10 plus L and marginal revenue product is 40 minus L. How many workers and what wage does a competitive market give? How many does a monopsony hire, and what wage does it pay?
A single buyer accounts for the higher wage it must pay on earlier workers. It equates marginal revenue product with that marginal cost, then pays the lower supply wage.
How many workers does the monopsony hire, and what wage does it pay?
רמת קושי 1/5 · 100 מטבעות + בונוס קטן בהשלמה הראשונה היום
Marginal cost of labour equals marginal revenue product at 10 workers. Their supply wage is 20, not 30.