Monopsony

A monopsony is a market condition where there is only one buyer for a particular good or service, giving that buyer significant control over prices and supply. This market structure can lead to lower prices for sellers and reduced overall market efficiency, often benefiting the single buyer at the expense of sellers.

Monopsony meaning with examples

• In the agricultural sector, a large supermarket chain can operate as a monopsony by purchasing products from farmers at lower prices. This power diminishes the farmers' ability to negotiate and can threaten their financial sustainability in the long term.
• Many local governments find themselves in a monopsony position when negotiating contracts for services like waste management. With few entities qualified to perform this service, the local government can dictate terms that may not necessarily favor the service providers.
• In the labor market, a big corporation might act as a monopsony employer in a small town, which can lead to lower wages than in competitive markets. Workers may have fewer choices and feel pressured to accept lower pay due to the lack of alternative employment opportunities.
• A healthcare provider in a rural area may operate in a monopsony scenario when it is the only facility offering certain specialized medical services. This positioning allows the provider to set prices that may not fully reflect the actual cost of delivering care, affecting patients' access to services.