Positioning has been exaggerated by marketers and sold like trigger point of business. There are multiple actions can be taken to along with positioning to gain market share and power.
Today I would like to raise 3 decisive tools, terms and type of market (depend on how you want to use it) which has been used by all great entrepreneurs of present and past to keep their company profitable and growing. How to execute it, this will depend on your skill, your values, your connection and your industry.
I called it MOMOS. This is something you need to know as an entrepreneur even if you hate the economic terms. In this article I am going explain only first M from MOMOS, which stand for:-
M=Monopsony (Singer Buyer)
O=Olygopsony (Few Buyers)
M=Monopoly (Single Seller)
O=Olygopoly(Few Sellers)
S=Soft Market (More buyer than seller)
There are many advantages for company and entrepreneurs from these methods without harming the society but, there is a barrier also to think and act on this method, this is your own values.
So if you are the person who feels not to act in such way because it's not suiting your values then either change your thinking or get ready to be eaten by competition at one occasion.
M=Monopsony
Monopsony and monopsonist are descriptive terms often used to describe a market where a single buyer substantially controls the market as the major purchaser of goods and services.
It's an economics term. A monopsony means a single buyer or purchase. Monopsony is a market structure in which only one buyer interacts with many would-be sellers of a particular product.
In microeconomic a single entity is assumed to have market power over terms of the offer to its sellers, as the only purchaser of a good or service, much in the same manner that a monopolist can influence the price for its buyers in a monopoly, in which only one seller faces many buyers.
Roots of Monopsony
Monopsony term coined by an economist called Joan Robinson in her book The Economics of Imperfect Competition (1933).
Its a power of a company to be able to set prices to maximize profits not subject to competitive constraints or keep the wages lower to maximise profits.
This occurs when one buyer faces little competition from other buyers for that labour or good, so they are able to set wages and prices for the labour or goods they are buying at a level lower than the marginal revenue created by that labour or good, minimizing costs and maximizing profits.
How does happen?
- A monopsony occurs when a firm has market power in employing factors of production
- A monopsony means there are one buyer and many sellers.
- It often refers to a monopsony employer – who has market power in hiring workers.
- This is a similar concept to monopoly where there are one seller and many buyers.
In the real world
In the real world, monopsony exists in the product as well as in the labour market. A firm may not have the world or national monopsony but it does exist all around us. Mainly because of geographical, industry, occupational and immobilities boundary designed by laws maker, company, location and personal choices.
In the labour market, it gives an upper hand to employers such as it difficult for workers to switch jobs and find alternative employment.
For example, there are several employers who might employ supermarket checkout workers. However, in practice, it is difficult for workers to switch jobs to take advantage of slightly higher wages in other supermarkets.
There is a lack of information and barriers to moving jobs. Therefore, although there are several buyers of labour, in practice the big supermarkets have a degree of monopsony power in employing workers.
Example of Monopsony
In several industries, there is one buyer and several sellers.
Technology company
The technology industry is a great example of this type of monopsony. With only a few large tech companies in the market for engineers, major players like Cisco and Oracle have been accused of colluding and choosing not to compete with each other on the wages they offer technical positions.
This, in turn, suppresses wages so that the major tech companies realize lower operating costs and higher profits. This example also highlights the fact that a group of companies can act as a monopsony.
Super/hypermarkets
Supermarkets have monopsony power in buying food from farmers. If farmers don’t sell to the big supermarkets, there are few alternatives. This has led to farmer protests about the price of milk & meet in France.
Effect of monopsony of supermarket or hypermarket usually we can see in the media. Recently media in France coined the suppressive situation of employees in LeaderPrice (hypermarket)
Amazon
Amazon.com is one of the biggest purchases of books. If publishers don’t sell to Amazon at a discounted price, they will miss out on selling to the biggest distributor of books.
Conglomerate companies
Another example of a monopsony involves the input suppliers of a large company. If using a hypothetical situation, auto manufacturers consolidated into a single conglomerate, the resulting business entity would have a large amount of power over its suppliers.
Rubber companies
All the tire companies and rubber companies would compete with each other to win the auto manufacturers business. Producers of plastics, steel and other metals would also compete with each other to provide the best price to the large conglomerate.
Mining companies
A company that owns the mine is able to set wages low since they face no competition from other employers in hiring workers insofar as they are the only employer in the town and geographic constraints prevent workers from seeking employment in other locations.
Schools
Depend on the geography of a school. Some schools in hiring teachers so they can set salaries lower than they would be in a competitive market.
Public company
In many countries, some of the public company are M2 (monopsony or monopolist) which gave them an upper hand in business ( in hiring, in vendor procurement etc)
Some may argue that monopsony can have adverse effects on an economy. However, consumers can benefit if the monopsony passes along its savings rather than keeping it as additional profit.
Single buyer = Monopsony
In this case, a buyer has market power and tries to maximize the consumer surplus, not the producer surplus. We essentially have a monopoly in reverse, and consumer surplus is maximized by the consumer's choice of quantity purchased.
Instead of looking at the producer's marginal revenue function to define the monopoly quantity and price, we instead look at the consumer's "marginal expenditure," the amount of money he has to spend to obtain one more unit of a good, which changes with his purchase decision.
Once again, we have a quantity that is less than the free-market equilibrium, but in this case, a price that is lower than the free market equilibrium. This is described in the following diagram:
Figure 5.4 Marginal Expenditure
Credit: B. Posner
As you can see in Figure 5.4, the “Marginal Expenditure” line has the same intercept as the marginal cost line, but double the slope.
Monopoly-Monopsony
It is possible to have a situation where there are only one buyer and one seller. In this case, the quantity sold and the price will be a function of the negotiation between the trading partners. Some defence companies are a good example of it.
The obvious conclusion is that the more firms in a market, the closer we get to the competitive (wealth-maximizing) solution. This is why governments generally try to stop monopsonies and break market power, however, this is a manipulative term, most often and most of the countries protect the monopsony at a certain level.
If you get any further question or want to add your opinion, feel free to comment below.
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