Monopsony

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Monopsony

In economics, a monopsony
is a market with only one
buyer in the market, often an
input market. This is
analogous to the case of a
monopoly in which there is
only one seller in a market.

 Monopsony means that a business

with monopoly power can control the
supply of the goods that they buy.
That means that it can reduce the
quantity of an input demanded in
order to depress the price of that
input. This contrasts with a
competitive buyer, which simply buys
as many units of input as long as the
marginal benefit exceeds the input
price, over which it has no control.

 Monopsony power in essence gives a

business the ability to control their
unit cost of paying for an input,
similar to how a monopoly can
control their price.
Sometimes with monopoly power in
markets comes monopsony power
because as well as selling the most
they buy the most.

 Monopsony/Monopoly give businesses

above-normal profits when they
(1) reduce input purchases to forcibly
lower their unit costs and
(2) decrease output supply, raising its
price. This raises profits via both ends
of the spectrum.

Monopsony in Labor Markets

The "classic" case of a monopsony in
labor markets is the "company
town," an isolated town where there
is only one employer (or almost
everybody is dependent on a single
employer for their livelihood).
This situation was seen in places in
the provinces during the 19th
century, but most economists see it
as rare today in the other countries.

 Further, the monopsony power

of an employer is increased
when there is significant
unemployment since that
raises the cost of quitting one's
job and lowers the probability
of finding a new one.

In the case of a monopsonistic employer of labor,

the imposition of a minimum wage can actually
raise employment, as seen below.

Non-Labor Examples
An example of a market with a
monopsony is the market for road
construction, in which there are many
suppliers but only one significant buyer
(the government).
These examples indicate that the
government can have monopsony power.
The first two also suggest that in the real
world, we cannot ignore the existence of
what John Kenneth Galbraith termed
"countervailing power."

 The construction industries are often well

organized and can form a coalition with
government decision-makers to dedicate
too many resources to road construction,
rather than the too few that are
suggested by the simple monopsony
model. Similarly, it is often alleged that
the military-industrial complex involves a
coalition that dedicates too many
resources to military purposes. Well
organized medical professions and
pharmaceutical industry could produce
similar results with single-payer
healthcare.

ALL

FOR THE GREATER GLORY OF THE

LORD!