Understanding Monopsonies and Oligopsonies

In class, we have gone over the concepts of monopsonies and oligopsonies. These are very abstract concepts that we may have never heard of before, so it is important to understand the market structures as we will be covering them a lot in the future. To start, it is important to understand the rather simple definitions of the two terms. Monopsonies are markets where this is one buyer of a product or service and many different sellers. Oligopsonies are markets where there are only a few large buyers of a product or service and still many different sellers.


Typically, monopsonies are oligopsonies relate to labor markets and the buyers of labor. Going back to monopolies, monopolies are where this is one supplier of a product and many buyers. Monopsonies are the same, but the other way around, where there are many suppliers and only one buyer. In the labor market, this means there is only one buyer of a type of specialized worker. In the above graph, in a competitive labor market, the equilibrium point will be at wage one, where the supply equals the demand. However, in a monopsony, the wage will lower to wage two, which is profit maximization where the marginal revenue cost equals the marginal revenue product. This means that monopsonies employ fewer workers at a lower wage, which obviously is bad for the workforce. An example of a monopsony is the government in their employment of civil servants and the police force.

Oligopsonies are also very apparent in labor markets. If we look back at oligopolies, where there are few buyers and many sellers of a product or service, while oligopsonies are where there are many buyers and few sellers of a product or service. This allows the buyers to exert a great control over the product prices and drive prices down. There are many different examples of this, for example, the meat market and how there are a few fast food restaurants (McDonald's, Wendy's) that buy the meat from them. This allows these fast food restaurants to dictate the price they pay to farmers and to have a large control over animal welfare and labor conditions. The graph for an oligopsony has a kinked supply curve similar to the kinked demand curve of an oligopoly.





https://www.economicshelp.org/labour-markets/monopsony/
https://www.investopedia.com/terms/o/oligopsony.asp