Monopsony

In: Business and Management

Submitted By nvash
Words 540
Pages 3
MONOPSONY

Prepared By:
Nitish Vashist (D14017)
XLRI-2014-17

INTRODUCTION
The term monopsony first introduced by Joan Robinson in his book in 1933.
Monopsony is defined as form of market in which only one buyer will act as interfaces for multiple sellers of a particular product. It also referred as Buyer’s monopoly.
There are many examples in history and in the world of monopsony like the Giant wine maker’s Ernest and Julio who were having immense power of buying grapes from growers, that seller had no choice but agree to their terms and conditions.
So we can also say buyers have the power to rule the market and manipulate the supply and demand accordingly.
OVERVIEW
There are many examples of monopsony but here I am going to take important one only.
First will try to understand monopsony in the labor market how it works and how it effects the people.
For example 1.0:
In Jharkhand, coal minining is considered as major source of employment most of the labors from nearby areas and other areas look forward for jobs here.
But if they didn’t get job here then they left with few alternatives and so employer took the advantage of this situation and exploit the labor’s by offering lower wages and facilities.
So we can say Employer are controlling the labor market accordingly.

We can understand this more with the help of below shown graph of monopsony exploitation.

Here we can see increase in Marginal Cost of labor higher than average cost if we try to increase the number the labor’s as you have to pay higher wages for attracting more workers.
In Monopsony one achieves the highest profit by employing labor’s where MR = MC i.e. L which means they have to pay only W as wages which lower than wage in the competitive market i.e. W’, where few workers are employed.
This represents Market Failure.
The green area above shows transfer of wages from workers to employer…...

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