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# Monopsony Power

## Definition

Market power held by a dominant buyer who faces many sellers, enabling
the buyer to suppress prices, extend payment terms, and impose conditions
below what competitive markets would support. In supply chains, monopsony
is exercised by large retailers or manufacturers who represent a significant
fraction of a supplier's revenue, giving them leverage to dictate terms
the supplier cannot credibly refuse. The long-run consequence is supplier
margin compression, underinvestment in quality, and supply fragility.

## Source

Market Structure in Modern Supply Chains, §Monopsony and Buyer Power

## Supply Chain Domain

Market Structure

## VSM Assignment

S3* — Monopsony power is exercised through the management control layer:
buyers set terms (pricing, payment, specification) that govern the
operational relationship. The S3* (audit/control) analogy holds because
the buyer uses its inspection and approval rights to enforce compliance
with terms extracted through buyer power.

## WoN Concept

Combination of Masters — Smith describes the combination of masters as the
coordinated exercise of employer power to suppress wages below their
competitive level. Monopsony power in modern supply chains operates through
the same mechanism: a concentrated buyer (or buyers acting in parallel)
systematically extracts value from fragmented suppliers, just as Smith's
combination of masters extracted value from fragmented workers. The parallel
is structural: in both cases, one side of the market is coordinated and the
other is atomistic, enabling systematic suppression of returns.
