Monopsony

Monopsony-static-partial-equilibrium

Monopsony-welfare-effects

Monopsony-minimum-wage

Monopsony in economics is a market condition where there is only one buyer for a product or service, in contrast to a monopoly, where there is only one seller. This single buyer, the monopsonist, has significant market power and can influence price and other market factors. Monopsonies can occur in various markets, including labor, where a single employer has significant control over the market for workers, and commodities, where one purchaser dominates the buying side of the market.

Characteristics

A monopsony is characterized by:

• A single buyer dominating the market.
• Limited choice for sellers, leading to potential exploitation.
• The ability of the monopsonist to set prices to their advantage.

Causes

Monopsonies can arise due to various factors, including:

• Legal or regulatory barriers that prevent the entry of new buyers.
• Specialized markets where only one buyer has the expertise or capability to purchase the goods or services.
• Geographic isolation, where sellers have limited access to buyers.
• Control of essential resources, making it difficult for other buyers to enter the market.

Effects

The effects of monopsony can be mixed. On one hand, monopsonies can lead to lower prices for consumers when the cost savings are passed on from the monopsonist's purchasing power. On the other hand, they can also result in lower wages for workers and reduced profits for producers due to the lack of competition among buyers.

Examples

• In the labor market, a large factory in a small town might be the only significant employer, effectively creating a monopsony.
• In healthcare, a government may act as a monopsonist when it is the sole purchaser of healthcare services or pharmaceuticals.

Responses and Regulation

Governments and regulatory bodies may intervene in monopsonistic markets to protect the interests of sellers and ensure fair competition. This can include:

• Antitrust laws and regulations aimed at preventing market abuse.
• Policies to encourage the entry of new buyers into the market.
• Direct government intervention in cases where market dynamics lead to undesirable outcomes.

See Also

• Market structure
• Oligopoly
• Perfect competition
• Monopoly