monopsoni

Monopsoni, in economics, refers to a market structure in which there is a single buyer facing many sellers. The buyer possesses significant market power to influence the price and terms of purchase, typically depressing input prices relative to a competitive market. The term originates with Joan Robinson, who used it to describe how a lone employer can affect the price of labor or other inputs in a market with many sellers. In Italian usage, the plural is monopsoni.

In a monopsonistic labor market, the employer’s demand for labor is derived from the value of the marginal product, while the supply of labor is upward-sloping because higher wages attract more workers. To hire an additional worker, the firm must raise the wage for all workers, increasing the marginal cost of labor (MCL). The firm hires workers up to the point where marginal revenue product of labor (MRPL) equals MCL. This yields a wage that is lower than the competitive level and employment that is lower as well. In contrast, in a perfectly competitive labor market, W equals MRPL and employment is higher.

Monopsony can also occur in product or input markets beyond labor, when a single buyer exerts power over prices for a good or factor. The concept is often discussed alongside oligopsony, where a small number of buyers hold market power.

Policy implications include countering buyer power through minimum wage laws, public employment programs, or competition policy aimed at increasing the number of effective buyers. Labor unions and anti-trust interventions can influence outcomes by altering the balance between buyers and sellers. Empirical settings frequently cited include agricultural labor markets and certain centralized procurement contexts, where a few buyers dominate the market for inputs.