Other attributes
This term was created in 1933 in the book “The Economics of Imperfect Competition” by Joan Robinson. Monopsony is a situation when the buyer can dictate his terms for the sellers because he is the main (or alone) consumer of a certain good or service.
Economists use the term "monopsony" in a way similar to "monopoly power" as a shorthand reference to a scenario in which there is one dominant buying power such that power is able to price profit maximization that is not subject to the restriction of competition. A monopsony exists when one buyer faces little competition from other buyers so they can charge wages or prices for the labor or goods they buy at a level lower than they would in a competitive market. In the economic literature, the term "monopsony" is predominantly used when referring to labor markets, but it can be applied to any industry or service where the buyer has bargaining power over all sellers.
The classic example is a mining village. There is only one company who can hire people and set an average salary. But there are many miners who want to work. The labor market with fragments of monopsony is not rare. Often similar situations are in small towns where there is only one big employer.
In a perfectly competitive labor market, entrepreneurs have a wide choice of specialists, labor mobility is absolute, any firm hires labor at a constant price, and the labor supply curve in the industry reflects the marginal cost of hiring a resource - labor. Under monopsony conditions, the monopsonist firm itself personifies the industry, so the labor supply curves for the firm and the industry coincide. But for an individual monopsonist firm, the labor supply curve shows not marginal, but average labor costs, for a monopsonist, the labor supply curve is an average cost curve (ARC), not marginal.
- On the labor market are many professional specialists who are not united in trade unions. And at the same time there is one big company (or a few companies united in one unit) who is an employer.
- Company or group of companies hire only one part of the big summary of the specialists.
- The profession does not have high mobility due to socio conditions, geographical places, etc.
- The company-monopsony set the size of salary and workers must agree to it or look for other work.
