Monopsony

In economics, a monopsony (from Ancient Greek μόνος (mónos) "single" + ὀψωνία (opsōnía) "purchase") is a market structure in which only one buyer interacts with many would-be sellers of a particular product. In microeconomic theory of monopsony, a single entity is assumed to have market power over terms of offer to its sellers, as the only purchaser of a good or service, much in the same manner that a monopolist can influence the price for its buyers in a monopoly, in which only one seller faces many buyers.

In addition to its use in microeconomic theory, monopsony and monopsonist are descriptive terms often used to describe a market where a single buyer substantially controls the market as the major purchaser of goods and services.

The term was first introduced by Joan Robinson in her influential book, The Economics of Imperfect Competition, published in 1933. Robinson credited classics scholar Bertrand Hallward at the University of Cambridge with coining the term.

The term "monopsony power", in a manner similar to "monopoly power", is used by economists as a shorthand reference to buyers who face an upwardly sloping supply curve but that are not the only consumer; alternative terms are oligopsony or monopsonistic competition.

The standard, textbook monopsony model refers to static, partial equilibrium in a labor market with just one employer who pays the same wage to all the workers. The employer faces an upward-sloping labor supply curve (as generally contrasted with an infinitely elastic labor supply curve), represented by the S blue curve in the diagram on the right. This curve relates the wage paid, $w$ $w$ , to the level of employment, $L$ $L$ , and is denoted as an increasing function $w(L)$ $w(L)$ . Total labor costs are given by $w(L)\cdot L$ $w(L)\cdot L$ . The firm has a total revenue $R$ $R$ , which increases with $L$ $L$ . The firm wants to choose $L$ $L$ to maximize profits, $P$ $P$ , which are given by:

...
Wikipedia