PRICE UNDER MONOPSONY
The difference between competitive buying and monopsony buying is that, in the former case, there is a large number of buyers, and the purchases of none of them can affect the market price. To each the supply is perfectly elastic. A . light variation in his price offer will vitally affect the amount of his purchases; for instance. if he offered even a little less than the market price he will be able to buy nothing. The market price, so far as such individual purchaser is concerned. is given. He will buy an amount which equates his marginal utility to the price. But under monopsony there is one buying agency or the buyers are supposed to act in a concerted manner. A monopsonist will 0 regulate his purchases as to equate marginal cost to marginal utility. since he must pay the supply price of the commodity, Under competition. it is the price or average cost which is equal to marginal utility. The difference between marginal cost and price will arise only when the industry is working under increasing or decreasing cost. When the industry is operating under the constant ~lIpply price, the average cost (i.e.. price) and marginal co-,t arc equal and the amount purchased under competition and monopsony will he the same. When. however, the industry IS working under supply price, and the marginal cost to him will be less than the supply price. In this case, hc will buy morc than under competition. Just as the monopolist aims at maximising his profit, in the same manner the monopsonist aims at maximising his consumer’s surplus, and consumer’s surplus is maximum when (he marginal cost is equal to marginal utility. This may be called the optimum purchase. If the amount purchased exceeds this, the marginal utility will be less than the marginal cost and the consumer’s surplus will be reduced. Purchasing short would mean that the utility is reduced more the saving in cost.
A monopsonist can also resort to price discrimination like monopolist by tackling the sellers separately. “The monopsonist will buy from each source of supply in such a way that the marginal costs to him of the outputs bought from each source are equal to each other and to the marginal utility of the whole amount purchased, in just the same way as the monopolist will sell in each separate market such an amount that the marginal revenues arc equal in cash market and equal to the marginal cost of the whole output. The po ibility of discriminating with advantage will depend upon a difference in the elasticities of supply from various sources, that is the elasticities of the average cost curves of each group of sellers.t”? To what extent the monopsonist can discriminate will depend on the number of the sellers and thc supply condition of each. In a ay, a monopolist is a monopsonist of the factors that he uses and if the factors are not homogeneous. hc will be able to discriminate between thern. especially in the case of an imperfectly clastic supply.