monopsonies

Monopsonies refer to market situations in which there is only one buyer or a dominant buyer facing many sellers. The term, developed in part by economist Joan Robinson, is the counterpart to monopoly and is especially relevant in labor and input markets where a single employer or purchaser has market power over numerous workers or suppliers.

In a monopsony, the buyer confronts an upward-sloping supply curve for the input. To hire more units, the buyer must raise the wage for all workers, so the marginal cost of labor exceeds the wage. The firm hires where the marginal revenue product of labor equals the marginal cost of labor, typically resulting in fewer workers and a lower wage than would prevail under perfect competition. This creates a deadweight loss and allocative inefficiency relative to a competitive market.

Monopsonies can arise in local labor markets with a dominant employer, or in markets for essential inputs where there are few buyers and many sellers, such as a single processor in an agricultural region. Real-world effects depend on mobility, supply elasticity, and entry by other buyers or institutions that can counteract the buyer’s power.

Policy and organizational responses include promoting competition among buyers, encouraging labor mobility or entry of alternative employers, and strengthening workers’ bargaining power through unions or public procurement rules. In some models, a binding minimum wage can, under certain conditions, raise both wages and employment by limiting the buyer’s ability to suppress wages. Antitrust and regulation targeting buyer power are also potential tools to mitigate monopsonistic distortions.