when there is limited demand for a good or service there may only be one buyer willing to purchase the product resulting in a monopsony consider agriculture in developing countries the good produced in these extremely rural areas often can t be shipped around the world for this reason this type of agriculture and its associated shipping restrictions is often only demanded by local governments or local food processing companies 
high barriers to entry such as regulations or high capital requirements can make it difficult for new buyers to enter the market and compete with the existing buyer this may be true in situations where a buyer must be credentialed hold certain permits or meet exclusive criteria a monopsony can result from market consolidation where several buyers merge and control a significant share of the market consider how the merger of telecommunication giants t mobile and sprint caused changes on the demand side of business instead of there being two different buyers the post merger market resulted in just one company but still potentially buying the same amount of goods in some cases government policies or regulations may lead to a monopsony in a particular market for example if the government is the only buyer of a particular product it can create a monopsony in addition governments may enter into contracts that restrict who sellers can contract with or the quantities the producer may supply to broad markets monopsony in the u s labor marketmonopsony can also be common in labor markets when a single employer has an advantage over the workforce when this happens the wholesalers in this case the potential employees agree to a lower wage because of factors resulting from the buying company s control this wage control drives down the cost to the employer and increases profit margins the technology engineering market offers one example of wage suppression with only a few large tech companies in the market requiring engineers major players have been accused of conspiring on wages to minimize labor costs so that the major tech companies can generate higher profits this example illustrates a sort of oligopsony in which multiple companies are involved criticisms of monopsonieseconomists and policymakers have increasingly become concerned with the domination of just a handful of highly successful companies controlling an outsized market share in a given industry they fear these industry giants will influence pricing power and exert their ability to suppress industry wide wages indeed according to the economic policy institute a nonpartisan and nonprofit think tank the gap between productivity and wage growth has been increasing over the last 50 years with productivity outpacing wages by more than six times monopsony and monopoly are two sides of the same coin while monopsony refers to one buyer in a market of multiple sellers monopoly refers to one seller in a market of multiple buyers monopsony is about demand while monopoly is about supply in 2018 economists alan krueger and eric posner authored a proposal for protecting low income workers from monopsony and collusion for the hamilton project which argued that labor market collusion or monopsonization might contribute to wage stagnation rising inequality and declining productivity in the american economy they proposed a series of reforms to protect workers and strengthen the labor market those reforms include forcing the federal government to provide enhanced scrutiny of mergers for adverse labor market effects banning non compete covenants that bind low wage workers and prohibiting no poaching arrangements among establishments that belong to a single franchise company 1in april 2024 the federal trade commission voted to ban non compete agreements in employment contracts the rule is slated to take effect in september 2024 however the rule may be temporarily blocked depending on ongoing litigation 2monopsony vs monopolya monopoly is a market situation where there is only one seller or producer of a particular good or service this gives that seller considerable power to control prices and output meanwhile a monopsony is a market situation where there is only one buyer of a particular good or service monopsony power arises when the buyer has the ability to lower the price of a product or service by reducing the quantity they purchase the difference between a monopsony and monopoly is the aspect of trade that is being controlled while a monopoly has exclusive control over the supply of a good or service a monopsony has exclusive control over the demand for that good or service a monopoly leads to the producers have excess power while a monopsony leads to a consumer having excess power both a monopoly and monopsony can lead to market inefficiencies however each results in different inefficiencies that arise in different ways for example in a monopoly consumers face higher prices in a monopsony workers may be forced to take on lower wages as a result in imposed lower prices example of a monopsonytake the example of a coal factory in a coal mining town an oft cited example of a monopsony a coal factory sets up shop in an area where there is no civil life or residents the company attracts workers and a town builds up around the factory where the majority of the employees work the factory is the only real employer in town it can set wages below market prices and determine how many individuals will be employed at any time this has a ripple effect on the rest of the community such as the other types of businesses set up in town the amount they can charge and how many people they can hire if the coal factory went bust and closed there would be no jobs and therefore no demand for any of the other goods and services sold by the businesses in the town but because the coal factory is the only real employer its wages can be unfair and its working conditions poor and unsafe yet people will still seek to work there 