What is Monopsony?
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A monopsony is a market condition in which there is only one buyer, the monopsonist. Like a monopoly, a monopsony also has imperfect market conditions. The difference between a monopoly and a monopsony is primarily in the difference between the controlling entities. A single buyer dominates a monopsonized market while an individual seller controls a monopolized market. Monopsonists are common in areas where they supply most or all of the region's jobs.
Definition
A monopsony is a market condition where there is only one buyer, known as a monopsonist. Similar to a monopoly, a monopsony exists under imperfect competition conditions. It is characterized by a single buyer dominating the demand for goods or services in the market.
Origin
The concept of monopsony originated from economic studies on market structures, particularly when analyzing imperfect competition markets. Historically, this market structure is common in certain regions or industries, especially where a single buyer can control most or all employment opportunities.
Categories and Features
Monopsonies can be categorized based on their scope and industry. For example, in agricultural markets, the government may act as the sole buyer of agricultural products. In labor markets, a large corporation might be the only employer. Features include the buyer's ability to control prices and their bargaining power over suppliers.
Case Studies
A typical case is the U.S. defense industry, where the government, as the primary buyer, has significant bargaining power over defense contractors. Another example is mining companies in certain regions, which may be the sole employer, creating a monopsony in the labor market.
Common Issues
Investors facing a monopsony might encounter issues such as price opacity and limited bargaining power for suppliers. A common misconception is that monopsonies are always harmful to the market, whereas they can sometimes increase efficiency.
