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What is a Buyer's Monopoly?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 22 September 2016
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    Conjecture Corporation
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More properly referred to as a monopsony, the buyer’s monopoly involves an arrangement in which there is a single client for a product or service that is produced and sold by a company. Although the buyer’s monopoly allows for 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 can exist in a sector of the market where there is essentially only one outlet for sale of goods produced. One 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 communication equipment will compete to secure the business of that single client. Companies that were unable to sell their products to the telecommunications monopoly would either go out of business or have to arrange to sell their products outside the country.

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Monopsonies are not necessarily a negative situation for suppliers. Once working agreements are in place with the buyer, it becomes an easy task to schedule production of products in order to meet the demands of the single client. This makes it possible for the supplier to arrange the most efficient use of raw materials, labor, and other factors that go into the manufacturing process. Being familiar with the usage patterns of the single client, plus being able to anticipate a steady demand for the products in question, can make the idea of a buyers monopoly very appealing.

For the buyer, there are also several advantages to a buyer’s monopoly. One of the key attractions is the ability to secure attractive pricing. Suppliers are often willing to extend significant discounts to pricing in order to become the sole provider for a large company. Buyers also can look forward to enjoying the ease of one stop shopping. When additional units are desired, it is simply a matter of making one contact and the goods will be delivered in short order. Keeping a large client happy is often plenty of motivation for suppliers to take all necessary steps to keep the client happy, thus ensuring that the buyer’s monopoly continues for many years to come.

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Markerrag
Post 2

@Terrificli -- I don't know what that situation is called, but here is a good illustration that makes your point for you.

There was a trucking company called Cannon Express in Springdale, Ark. Walmart Stores in Bentonville chose Cannon to transport goods to stores throughout the nation and the trucking firm became reliant on Walmart. Cannon, at one point, handled virtually all the shipping for Walmart and the company boomed.

In the early 2000s, Walmart officials decided they could save money by buying its own trucks, hiring its own drivers and taking care of its own shipping. You'll notice that Cannon is not in business anymore. The lesson here is that having one major client can be a benefit, but a company that doesn't concentrate on bringing in new customers may be asking for trouble down the road.

Terrificli
Post 1

What do you call it when one client provides, say, 80 percent of a company's revenue? That's not exactly a monopoly, but it can be a dangerous spot for a company -- if that one client vanishes, then the business is in a lot of trouble.

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