Monopsony

Market power usually conjures a dominant seller. But the same power can belong to a dominant buyer, and that mirror image is monopsony.

A monopsony is a market structure in which there is a single, or dominant, buyer facing many sellers, giving the buyer power to influence the price it pays. It is the mirror image of monopoly: where a monopolist is the sole seller with power over the selling price, a monopsonist is the sole buyer with power over the buying price.

Power on the buying side

Just as a monopolist can restrict output to raise the price it charges, a monopsonist can restrict how much it buys to lower the price it pays. Facing many sellers who have nowhere else to sell, the dominant buyer can push prices, and incomes, below the competitive level. The classic illustration is a labour market dominated by a single major employer in a town, who can pay workers less than they would earn in a competitive market because they have few alternative employers to turn to.

Where it appears

Monopsony power appears wherever buyers are concentrated relative to sellers. Large supermarket chains can exert monopsony power over food suppliers, squeezing the prices they pay; dominant employers can suppress wages, especially where workers cannot easily move; large platforms can dictate terms to the many small businesses dependent on them. Monopsony in labour markets has drawn growing attention as an explanation for wages that lag productivity, since employer power, not just worker productivity, helps set pay.

Why it matters

Monopsony causes harms analogous to monopoly, but on the buying side. By depressing the prices and incomes of those who sell to it, the dominant buyer captures value at their expense and creates inefficiency, since the artificially low price leads to less being supplied, traded, or produced than a competitive market would deliver. In labour markets this means lower wages and employment than competition would yield. Recognising monopsony has broadened competition policy beyond its traditional focus on sellers to the power of dominant buyers.

Monopsony is the often-overlooked counterpart to monopoly, the power that comes from being the dominant buyer rather than the dominant seller. It is a reminder that market power can sit on either side of a transaction, and that concentrated buying power, whether over suppliers or workers, can depress prices and incomes and distort markets just as concentrated selling power can.