Abstract
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.
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