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Summary Unit 3 - Monopsony firms and Pressure Groups
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This summary explains how pressure groups affect the supermarkets in the UK to become more efficient.
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rewrite on paperDiscuss how pressure group activity to protect the interests of suppliers may impact on
the business behaviour of monopsony firms.
A monopsony exists when there is only one dominant buyer but many sellers in the market.
In the UK, supermarkets tend to have monopsony power over farmers. If farmers do not sell
their goods to supermarkets there are very few alternatives that they are able to turn to.
Pressure groups exist when individuals who share a common interest try to influence the
decisions made by businesses or governments.
Pressure group activity, to protect the interests of suppliers, may cause firms with
monopsony power to improve the firms’ level of efficiency. This occurs because, as pressure
groups begin to have more influence this causes firms to alter business behaviour. Higher
levels of efficiency may lead to lower costs for monopsonies and in turn increase prices for
suppliers. Pressure group activity is likely to influence supermarkets to increase prices for
farmers. In order for this to happen, supermarkets may become more allocatively efficient,
where price = marginal cost.
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