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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!”
