Assalamualaikum Wr.Wb.

Good morning Mr Irfan Masrur as Tutor and fellow students. Allow me to answer the
discussion in this seventh session based on the literature that I have read. The following is the
result of my description of monopsony. Regarding Monopsony, I disagree that Monopsony is
good for the economy. Monopsony, where one buyer dominates the market and becomes the
main buyer of a particular good or service, can have several negative impacts on the
economy. Here are my main reasons why monopsony is considered detrimental, supported by
the expert sources I have read:

 Depressed Wages and Labour Exploitation

According to Alan Manning, a professor of economics at the London School of Economics,

explains that monopsony power in the labour market allows employers to set wages below
competitive levels, which hurts workers and reduces overall welfare. In a monopsony labour
market, a single employer has significant power to set wages. As workers have little to no
alternative employer, they are often forced to accept lower wages compared to wages in a
competitive market. This results in lower overall incomes for workers and can contribute to
income inequality.

 Reduced Employment Rate

Monopsony firms may also employ fewer workers compared to what happens in a
competitive market. Since they are the only buyers, they can maximise profits by reducing
the number of workers they employ, further exacerbating the problem of unemployment or
underemployment in the economy. The Economic Policy Institute (EPI) highlights that
monopsony power can lead to labour market distortions where fewer workers are employed,
and those who are employed face suppressed wages and worse working conditions.

 Lower Productivity and Innovation

According to Joseph Stiglitz, a Nobel laureate in economics, notes that monopsonistic

practices can lead to inefficiencies and misallocation of resources, which stifles innovation
and economic growth. When wages are kept artificially low, workers have less incentive to
increase productivity or invest in their own skills. This can lead to stagnation in productivity
growth and decreased innovation in industries.

 Market Distortions and Allocative Inefficiencies

 The OECD points out that monopsony power can lead to allocative inefficiencies, where
resources are not utilised in the most productive way, thereby reducing economic output and
social welfare. Monopolies can cause significant distortions in the market. The power to
dictate terms to suppliers and labour can lead to misallocation of resources, where prices and
wages do not reflect true market values. This leads to an inefficient distribution of resources
across the economy, reducing overall welfare.

 Reduced Consumer Welfare

The Brookings Institution discusses how monopsony power in the labour market can lead to
reduced consumer welfare by reducing workers' purchasing power, which in turn can lead to
lower aggregate demand and economic growth. While monopolies directly impact suppliers
or workers, the negative impact can extend to consumers. Lower wages and reduced
employment can lead to lower overall demand in the economy, which can hurt businesses and
lead to higher prices or reduced availability of goods and services.

Monopsony power can distort market dynamics leading to lower wages, reduced
employment, decreased productivity, and overall allocative inefficiency. These effects are
harmful not only to workers and suppliers, but also to the economy and consumer welfare at
large. Addressing monopsony power through appropriate regulations and policies is critical to
ensuring a more competitive and fair market environment. This is the result of my opinion in
this seventh session of the discussion forum. Perhaps there are things that colleagues want to
ask or want to support my opinion may be allowed, thank you.

Wassalamualaikum Wr.Wb.

Reference Source :

 Mardian, Siti Era (2023). Buku Materi Pokok (BMP) ADBI4 Bahasa Inggris Niaga . Jakarta.
Universitas Terbuka.
 Economic Policy Institute. ‘Monopsony and the low-wage economy.’
 Stiglitz, Joseph E. ‘The Price of Inequality: How a Divided Society Endangers Our Future.’
W.W. Norton & Company.
 OECD. ‘Monopolies and Market Power in the Labour Market.’
 The Brookings Institution. ‘Monopoly power and the labour market.’