Policies to counter monopsony power
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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.
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Policies to counter monopsony power
- 1. Policies to address monopsony power A Level Microeconomics Tutor2u Economics
- 2. Monopsony power in product markets • A monopsony has buying power in their market • 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
- 3. The relentless march of Amazon? $10 billion of profit in 2018
- 4. Strategies to help counter monopsony power • Industry regulation and fines for exploitation of market power • Competition policy to block some mergers and possibly break up monopoly businesses • Establishing co-operatives as a counter-balance to • Laws / industry standards on ethical sourcing • Using technology to direct to consumers
- 5. How can monopsony power be controlled? • Setting up a regulator to monitor the activities of firms with monopsony power, such as the UK's Groceries Code Adjudicator (GCA) • All grocers with turnover of more than £1 billion covered • GCA can levy penalties of up to 1% of turnover
- 6. How can monopsony power be controlled? • Tougher competition policy to limit the market power of monopolies / dominant firms • Reduce entry barriers so new entrants can emerge • Consider forced de- merger (divestment) • Blocking mergers • But there is no guarantee that breaking up firms with big market power will ultimately benefit consumers and suppliers
- 7. How can monopsony power be controlled? • Producer co-operatives may develop • Better able to negotiate with transnational corporations • Might use some extra profit to invest in processing / branding • Might be combined with influence of the Fair Trade movement • But relatively limited impact globally Source: Oromia Coffee Union, Ethiopia
- 8. Long run strategy – building partnerships and increasing capabilities
- 9. Policies to address monopsony power A Level Microeconomics Tutor2u Economics
Hinweis der Redaktion
- 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
- Not only has Amazon cemented its position as the leading online retailer in large parts of the world, it has also built an industry-leading cloud computing business, established itself as a major player in music and video streaming and built an early lead in the booming smart speaker market. Amazon's net income more than tripled from $3.03 billion in 2017 to $10.07 billion in 2018.
- Setting up a specific regulator to monitor the activities of firms with monopsony power, such as the UK's Groceries Code Adjudicator (GCA). The GCA, which adjudicates on issues relating to thegroceries supply code of practice, came into force in 2013 and monitors the trading practices of the 10 regulated grocery retailers that have an annual turnover of more than £1 billion, and promotes what it calls 'fair dealing' in the supermarket sector.
- Oromia Coffee Farmers Cooperative Union /OCFCU/ limited liability is a smallholder coffee growers owned cooperative union established on June 1, 1999, by 34 cooperatives with 22,691 farmers. Today there are 405 cooperatives with over 400,000 Members and $20,000,000 Capital. OCFCU is a Democratic member’s owned business operating under the principles of International Cooperative Alliance and fairtrade.
- In the long run, suppliers need to develop resilience so that they can effectively compete against the buying power of a monopsonist. Consider coffee growers from Ethiopia – the partnership here between the Oromia coffee growers and Union direct trade is important for the farmers. They get a price typically 50 per cent above the Fairtrade minimum and farmers sell direct to this UK-based roaster and retailer so that the TNC roasting companies don’t get to the take the intermediate profit.