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Better known as monopsony, buyer’s monopoly involves an arrangement where there is only one customer for a product or service that one company produces and sells. Although the buyer’s monopoly allows only one buyer for a product, it is not necessarily true that the producer will only offer one product for general sale.
A buyer’s monopoly may exist in a market sector where there is essentially a single point of sale for the goods produced. An example of a buyer’s monopoly would be in the area of telecommunications. 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 could not sell their products to the telecommunications monopoly would go bankrupt or would have to organize the sale of their products outside the country.
Monopsony is not necessarily a negative situation for providers. Once working arrangements are made with the buyer, it becomes an easy task to schedule the production of products to meet the demands of a single customer. This makes it possible for the supplier to organize the most efficient use of raw materials, labor and other factors involved in the manufacturing process. Knowing the usage patterns of a single customer, as well as being able to anticipate constant demand for the products in question, can make the idea of a buying monopoly very attractive.
For the buyer, the buyer’s monopoly also has several advantages. One of the main attractions is the possibility of guaranteeing attractive prices. Suppliers are often willing to offer significant price discounts to become the sole supplier to a large company. Shoppers can also enjoy the ease of shopping in one place. When additional units are desired, simply make a contact and the products will be delivered in no time. Keeping a large customer satisfied is often a strong motivation for suppliers to take steps to keep them satisfied, thus ensuring that the buyer’s monopoly continues for many years.