What is Monopsony

What is Monopsony

Monopsony is a market in which a single buyer completely controls the demand for a good. While the market for any type of good, service, resource, or commodity could, in principle, function as monopsony, this form of market structure tends to be most pronounced for the exchange of factor services.
While the real world does not contain monopsony in its absolute purest form, labor markets in which a single large factory is the dominate employer in a small community comes as close as any.

Monopsony

Like a monopoly seller, a monopsony buyer is a price maker with complete market control. Monopsony is also comparable to monopoly in terms of inefficiency. Monopsony does not generate an efficient allocation of resources. The price paid by a monopsony is lower and the quantity exchanged is less than with the benchmark of perfect competition.

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