Definition
Monopsony
A market with a single buyer — or, in labor markets, an employer with wage-setting power.
Definition
A market with a single buyer — or, in labor markets, an employer with wage-setting power.
Why It Matters
In a monopsonistic labor market, the employer sets wages below the competitive level, transferring surplus from workers. This justifies minimum wages, labor regulation, and antitrust enforcement even on the buyer side of markets.
Policy Example
In towns dominated by a single major employer (a mine, hospital, or university), workers may have limited alternatives, giving the employer monopsony power to pay below competitive wages. Non-compete agreements artificially create monopsony-like conditions in otherwise competitive labor markets.
In Context