Can a monopsony increase welfare in uncertain markets?

Demand uncertainty may be a significant barrier for firms entering a market. This study suggests that establishing a monopsony that absorbs demand uncertainty by its commitment to a long-term stable price may efficiently reduce uncertainty. An economic model examines the social welfare consequences of establishing such a monopsony in the waste recycling market in Israel. The results show that establishment of a monopsony in the waste recycling market could be efficient from a social welfare perspective, although this depends on the market’s uncertainty level. According to our analysis, profitability exists only when the level of uncertainty in the market is very high–in this case, 140% higher than in 2000–2004. Thus, it is efficient for a monopsony to operate only in situations of extreme market uncertainty.