Buyer monopoly, or monopsony, occurs when there is only one customer for a product or service produced by one company. This can be advantageous for both the supplier and buyer, with the supplier being able to efficiently plan production and the buyer receiving attractive prices and one-stop shopping. An example is the telecommunications sector where manufacturers compete for the business of the single authorized local telephone service provider.
More commonly referred to as monopsony, buyer monopoly involves an arrangement where there is only one customer for a product or service that is produced and sold by one company. While a buyer’s monopoly allows for only one buyer for a product, it’s not necessarily true that the manufacturer will only offer one product for general sale.
A buyer’s monopoly may exist in a sector of the market where there is essentially only one outlet for the sale of manufactured goods. An example of a buyer’s monopoly would be in the telecommunications sector. In a country where there is only one authorized local telephone service provider, companies that manufacture communications equipment will compete to secure the business of that single customer. Companies that were unable to sell their products to the telecommunications monopoly would either go out of business or have to arrange for their products to be sold outside the country.
Monopsonies are not necessarily a bad situation for suppliers. Once working agreements are concluded with the buyer, it becomes easy to plan the production of products in order to meet the needs of the individual customer. This allows the supplier to organize the most efficient use of raw materials, labor and other factors that go into the production process. Knowing the usage patterns of the individual customer, as well as being able to anticipate a constant demand for the products in question, can make the idea of a buyer monopoly very attractive.
For the buyer, there are also several advantages to the buyer’s monopoly. One of the main attractions is the possibility to guarantee attractive prices. Suppliers are often willing to extend significant price discounts to become the sole supplier for a large company. Shoppers can also look forward to enjoying the ease of one-stop shopping. When additional units are desired, it is simply a matter of making contact and the goods will be delivered in short order. Keeping a great customer happy is often a great motivation for suppliers to take whatever steps are necessary to keep the customer happy, thus ensuring that the buyer’s monopoly continues for many years to come.
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