Monopsony

Extracted Attributes

• Field

  Economics / Microeconomics

• Introduced By

  Joan Robinson

• Market Impact

  Ability to set prices and wages lower than competitive market levels

• Supply Curve Type

  Upward-sloping labor/resource supply curve

• Common Application

  Labor markets and government procurement

• Key Characteristic

  Single buyer with market power over many sellers

Timeline

• Economist Joan Robinson introduces the term monopsony in her book 'The Economics of Imperfect Competition'. (Source: Wikipedia)

  1933-01-01

• Medicare moves to negotiate drug prices, exercising monopsony-like power to slash costs for Big Pharma products. (Source: tutor2u)

  2024-08-17

• Reports highlight monopsony power in the UK grocery industry, specifically regarding how retailers like Aldi influence sprout growers. (Source: tutor2u)

  2024-12-21

Monopsony

In economics, a monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers. The microeconomic theory of monopsony assumes a single entity to have market power over all sellers as the only purchaser of a good or service. This is a similar power to that of a monopolist, which can influence the price for its buyers in a monopoly, where multiple buyers have only one seller of a good or service available to purchase from.

Web Search Results

• Monopsony - Wikipedia

  A classic theoretical example is a mining town, where the company that owns the mine is able to set wages low since they face no competition from other employers in hiring workers, because they are the only employer in the town, and geographic isolation or obstacles prevent workers from seeking employment in other locations. Other more current examples may include school districts where teachers have little mobility across districts. In such cases the district faces little competition from other schools in hiring teachers, giving the district increased power when negotiating employment terms. Alternative terms are oligopsony or monopsonistic competition. ## Static monopsony in a labour market [...] Monopsony theory was developed by economist Joan Robinson in her book The Economics of Imperfect Competition (1933). Economists use the term "monopsony power" in a manner similar to "monopoly power", as a shorthand reference for a scenario in which there is one dominant power in the buying relationship, so that power is able to set prices to maximize profits not subject to competitive constraints. Monopsony power exists when one buyer faces little competition from other buyers for that labour or good, so they are able to set wages or prices for the labour or goods they are buying at a level lower than would be the case in a competitive market. In economic literature the term "monopsony" is predominantly used when referring to labour markets; however, it could be applied to any industry, [...] The simpler explanation of monopsony power in labour markets is barriers to entry on the demand side. Such barriers to entry would result in a limited number of companies competing for labour (oligopsony). If the hypothesis was generally true, one would expect to find that wages decreased as firm size increased or, more accurately, as industry concentration increased. However, numerous statistical studies document significant positive correlations between firm or establishment size and wages. These results are often explained as being the result of cross-industry competition. For example, if there were only one fast food producer, that industry would be very consolidated. The company, however, would be unable to drive down wages via monopsonistic power if it were also competing against

• Monopsony Factor Markets - ReviewEcon.com

  What is a monopsony? A monopsony is a market with just one buyer. As a result, monopsonies are not wage takers like firms in perfectly competitive factor markets. Also since there is only one firm buying labor, the market is the firm (much like monopolies) and there is only one graph. The demand curve is still equal to the MRP and the firm will still hire where the MRC equals the MRP. The difference is since there is only one firm, the firm sees the entire market supply curve; which is upward sloping. Hiring more workers requires increasing the wage for all workers hired; not just the last worker hired. As a result, the cost of hiring additional workers (MRC) is higher than the wage workers are paid (the supply). For those reasons, the MRC is higher than the supply curve. [...] The quantity of workers hired is where MRP equals MRC, but the wage paid will be found at the supply curve below. Monopsonies hire fewer workers and pay them less (Qm and Wm) when compared to perfectly competitive labor markets (Qc and Wc). Note: The trick to identifying a monopsony when there is a chart instead of a graph is that the wage will increase with the quantity of workers. Why is the Marginal Resource Cost above the Supply for a Monopsony?

• A primer on monopsony power: Its causes, consequences, and implications for U.S. workers and economic growth - Equitable Growth

  #### AUTHORS: #### Topics Monopsony "" At its most basic, monopsony refers to a market where there is a single buyer of a good or service. Economist Joan Robinson first introduced the term in the early 1930s and used it to describe how imperfect competition in the market for labor can shift the bargaining power away from workers and toward employers—a dynamic that drags down wages and suppresses employment, just as a monopoly for a seller raises prices and lowers the amount sold. Unlike the perfectly competitive model taught in introductory economics classes, Robinson’s monopsony model captures how outsized employer power can give firms the ability to underpay workers, exacerbate income inequality, and hold back economic growth. [...] If a labor market is functioning in a more monopsonistic way, however, firms will be price-setters rather than price-takers. The idea is that unlike a firm operating in the perfectly competitive labor market, a monopsonist firm that faces no competition when hiring workers faces an upward-sloping, instead of a horizontal, labor supply curve. As such, if the monopsonist slashes its wages, then it will lose some, but not all, of its workforce. But while these firms will be able to hire workers even if they do not pay competitive wages, they will have to increase pay for all workers every time they want to attract an additional worker. As a result, monopsonist firms will hire fewer workers at lower wages. (See Figure 1.) Figure 1 [...] Let’s first take a deeper look at the perfectly competitive model of the labor market. A firm operating in this hypothetical labor market is a price-taker, meaning that it has no option but to pay the market wage—the wage that is determined by the forces of labor demand and labor supply. In economic parlance, this model of perfect competition posits that individual firms face a so-called horizontal labor supply curve, meaning that they can hire all the workers they want as long as they pay a competitive wage, or the “market wage rate.”

• Monopsony | Topics | Economics | tutor2u

  Monopsony power can be exercised in a number of ways. For example, the buyer can offer a lower price for the good or service than would be possible in a competitive market. Or, the buyer can require suppliers to accept certain terms and conditions, such as longer contracts or lower quality standards. Monopsony power can harm consumers and suppliers. Consumers may have to pay higher prices for goods and services, and suppliers may have to accept lower prices or worse terms and conditions. There are a number of businesses that have monopsony power. One example is Walmart. Walmart is the largest retailer in the United States, and it buys a lot of goods and services from suppliers. This gives Walmart a lot of power over the prices that it pays for these goods and services. [...] ### Explore ### More for students ### Explore ### More for students ### Subjects ### Quick links ### Student events & courses # Free Economics resources ### Topics ## Monopsony When a single buyer controls the market for a particular good or service, in essence setting price and quality levels, normally because without that buyer there would not sufficient demand for the product to survive. Monopsony is a market structure in which there is only one buyer of a good or service. This means that the buyer has a lot of power over the price that they pay for the good or service. [...] Another example is the government. The government is a major buyer of goods and services, such as military equipment, construction services, and food. This gives the government a lot of power over the prices that it pays for these goods and services. #### See also ### Monopsony Power & the UK Grocery Industry | Edexcel Essay Plan Exam Support ### Development Economics in 2025: Challenges and Opportunities for Emerging Markets - Livestream Notes 20th February 2025 ### Monopsony Power - How a Yorkshire Sprout Grower is Taking on Aldi’s Market Might 21st December 2024 ### The Great Christmas Veggie Battle: Who Pays the Price for Cheap Carrots? 6th December 2024 ### Big Pharma Faces a Reckoning: Medicare's Bold Move to Slash Drug Prices 17th August 2024

• Monopsony | Topics | Economics | tutor2u

  Monopsony power can be exercised in a number of ways. For example, the buyer can offer a lower price for the good or service than would be possible in a competitive market. Or, the buyer can require suppliers to accept certain terms and conditions, such as longer contracts or lower quality standards. Monopsony power can harm consumers and suppliers. Consumers may have to pay higher prices for goods and services, and suppliers may have to accept lower prices or worse terms and conditions. There are a number of businesses that have monopsony power. One example is Walmart. Walmart is the largest retailer in the United States, and it buys a lot of goods and services from suppliers. This gives Walmart a lot of power over the prices that it pays for these goods and services. [...] ### Explore ### More for students ### Explore ### More for students ### Subjects ### Quick links ### Student events & courses # Free Economics resources ### Topics ## Monopsony When a single buyer controls the market for a particular good or service, in essence setting price and quality levels, normally because without that buyer there would not sufficient demand for the product to survive. Monopsony is a market structure in which there is only one buyer of a good or service. This means that the buyer has a lot of power over the price that they pay for the good or service.