Summary
A simple definition would be that a monopoly is just a market where there is only one seller. However, monopolies must be well understood, in order to understand why they are so harmful. In this LP we learn about monopolies, starting with a few basic definitions and starting to learn about a few types of monopolies.Basic definitions:
Types of monopolies:
Monopsony (from the greek «mónos», single, and «opsõnía», purchase) is a market structure form of imperfect competition characterized by the existence of a unique buyer and many sellers. It is a similar case to monopoly but were the monopolistic powers come from the demand side and not from the supply one. Joan Robinson first coined this term in her book “The Economics of Imperfect Competition” 1933.
There are not many cases of real monopsonies in the world, however the many occur in any input market. Examples of this include the one of the United States over defence and security assets in the economy, which started during the cold war. Nevertheless, the most significant case analysed is monoposony in the labour market. Frictions between the job searching progress and joining to it, causes employees to be uncomfortable about leaving their workplace.
This position gives the employer monopsonist powers and allows them to push wages down to the marginal revenue product providing them with higher profits. Governments have the possibility to set a minimum wage to prevent wages dropping to very low levels.
Markets with the same features as monopsonies but where there are more than one buyer, being the number of buyers still small enough, are known as oligopsonies.
