Monopsony
In economics, a monopsony (from Ancient Greek (monos) "single" + (opsōnia) "purchase") is a market form with only one buyer, called "monopsonist," facing many sellers. It is an instance of imperfect competition, symmetrical to the case of a monopoly, in which there is only one seller facing many buyers. The term "monopsony" was first introduced by Joan Robinson (1933).
The term "monopsony power", in a manner similar to "monopoly power" is used by economists as a short hand reference to buyers who face an upwardly sloping supply curve but that are not the only buyer; better, but more cumbersome terms may be oligopsony or monopsonistic competition. A monopsonist may be at the same time a monopolist.
Is a market situation where there is only one buyer but several producers/ sellers of the product. eg one school which buys text books but several writers and publishers of the text books, former coffee marketing board in Uganda was the sole buyer of coffee grown and sold by several farmers (co-operative societies).
A monopsonist has market power, due to the fact that he/she can affect the market price of the purchased good by varying the quantity bought. Formally, this is so because a monopsonist faces a supply curve with a finite (and generally positive) price elasticity. However, one can find this condition - and hence monopsony power - also in markets with more than one buyer. In all such cases the resulting market form is called an oligopsony.
For most practical purposes, what matters is monopsony power as such, whether it is exercised by one or more subjects. In standard microeconomics, where monopsonists or oligopsonists are assumed to be profit-maximizing firms, monopsony power leads to a market failure, due to a restriction of the quantity purchased relative to the (Pareto-) optimal competitive outcome. Moreover, markets with monopsony power are predicted to react differently to public price regulations. Monopsony power is thus relevant from both the normative and positive points of view. The practical importance of its effects depends however on its actual intensity, measured by the size of the deviation from competitive outcomes.
Traditional microeconomics tended to assume that in most modern cases such intensity was small enough to be ignored, justifying as an acceptable approximation the general use of much simpler competitive models. The only and oft-quoted exception to this principle was assumed to be the labour markets of the nineteenth-century "company towns", which were isolated mining centres with only one employer (the mining company) for almost everybody.
The term "monopsony power", in a manner similar to "monopoly power" is used by economists as a short hand reference to buyers who face an upwardly sloping supply curve but that are not the only buyer; better, but more cumbersome terms may be oligopsony or monopsonistic competition. A monopsonist may be at the same time a monopolist.
Is a market situation where there is only one buyer but several producers/ sellers of the product. eg one school which buys text books but several writers and publishers of the text books, former coffee marketing board in Uganda was the sole buyer of coffee grown and sold by several farmers (co-operative societies).
A monopsonist has market power, due to the fact that he/she can affect the market price of the purchased good by varying the quantity bought. Formally, this is so because a monopsonist faces a supply curve with a finite (and generally positive) price elasticity. However, one can find this condition - and hence monopsony power - also in markets with more than one buyer. In all such cases the resulting market form is called an oligopsony.
For most practical purposes, what matters is monopsony power as such, whether it is exercised by one or more subjects. In standard microeconomics, where monopsonists or oligopsonists are assumed to be profit-maximizing firms, monopsony power leads to a market failure, due to a restriction of the quantity purchased relative to the (Pareto-) optimal competitive outcome. Moreover, markets with monopsony power are predicted to react differently to public price regulations. Monopsony power is thus relevant from both the normative and positive points of view. The practical importance of its effects depends however on its actual intensity, measured by the size of the deviation from competitive outcomes.
Traditional microeconomics tended to assume that in most modern cases such intensity was small enough to be ignored, justifying as an acceptable approximation the general use of much simpler competitive models. The only and oft-quoted exception to this principle was assumed to be the labour markets of the nineteenth-century "company towns", which were isolated mining centres with only one employer (the mining company) for almost everybody.