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Monopsony. Defining Monopsony. Monopoly = price setters that are sole sellers of a good or service Monopsony = price setters that are the sole buyers of a good or service Monopsony = single buyer in a market

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Presentation Transcript
defining monopsony
Defining Monopsony
  • Monopoly = price setters that are sole sellers of a good or service
  • Monopsony = price setters that are the sole buyers of a good or service
  • Monopsony = single buyer in a market
  • Monopsonies face an upward sloping supply curve: to buy more of a factor (e.g., labor), they must raise the price
examples
Examples
  • Major League Soccer (sort of)
    • Only buyer of pro soccer labor in US
    • Most players sign contracts with league, not individual teams
  • Wal*Mart (sort of)
    • Only huge buyer of many products, so heavily influences market
  • US Military (sort of)
    • Only buyer of top weapons programs
  • Locally (sort of):
    • BVSD (only major buyer of teacher labor in area)
defining monopsony1
Defining Monopsony
  • Monopsony graphs work similarly to monopoly graphs, but use supply curve instead of demand curve
  • Marginal Factor Cost (MFC) slopes more steeply than Supply
    • Monopsonies must raise price to increase supply of the factor
    • Increase in price affects all units of the factor supplied
  • Marginal Revenue Product (MRP) still slopes downward
    • MRP = the demand curve for the factor
monopsony and profit maximizing
Monopsony and Profit Maximizing
  • Monopsonies, like any company, want to buy cheaply
  • All firms will buy quantity of factor where MFC = MRP
  • Monopsonies, though, pay a lower price (“wage” = Wm)
  • What are the implications of monopsony for workers?
  • For the monopsony?