In economics, there is a concept opposite to monopoly. In this situation, a large number of sellers and only one buyer are present on the market. This is monopsony. There are plenty of examples of such a phenomenon in everyday life. One of the most significant is the labor market, where many workers are trying to sell their services and skills to a single enterprise. The cost of the final product in this case depends on the desire of the buyer.
Preconditions for the emergence of the labor market
Since monopsony is characterized by consumer preferences, certain conditions must occur in order for it to appear. Directly on the labor market, the following prerequisites exist for the emergence of such a situation.
- The company employs most of the specialists of a certain profession out of the total.
- In the labor market, there is an interaction between a multitude of skilled employees who are not affiliated with a union and a large organization.
- The company independently determines the amount of wages, and its employees are forced to put up with it or to seek another job.
- A certain type of work does not have high mobility due to geographical isolation, social conditions or other difficulties.
Pronounced monopsony in the labor market is not uncommon. It is most characteristic for small cities, where there is only one large enterprise, acting as an employer. In a competitive market, entrepreneurs have a wide choice of personnel, so labor mobility is absolute.
Comparison with a monopoly
The opposite phenomenon of monopsony is a monopoly, which is a market system in which one seller conducts economic activity with a large number of consumers. The company manufactures unique products that cannot be replaced. Consumers are forced to buy it or learn how to do without it.
The same principles are characteristic of monopsony. An example is also the state. It often acts as the sole buyer for certain types of weapons. In both cases, it becomes possible to influence the formation of prices, which leads to gaining power over the market.
What is the limitations of dictatorship?
Despite the opportunities, the power of monopsony cannot be absolute due to certain constraints in the economy. They are as follows.
- The power directly above the price of a product largely depends on its features and flexibility of supply.
- The characteristics of the current market situation, production process costs, margin sizes and other factors should be taken into account in order to increase the economic effect.
- The volume of production is selected at which the difference between the real and the price paid is most optimal.
- There is limited action due to the likely intersectoral overflow. Suppliers, in case of unsatisfactory outcome in terms of profit, may be redesigned to produce other products.
Thus, it can be concluded that monopsony is in the economy not absolutely absolute power over the market. There are certain factors that can affect the situation without control by external structures.
Main types
Many examples of monopsony can be given, but they will have their own characteristics, therefore it is customary to subdivide situations into specific types. Each of these groups will have its own characteristics. The most common state monopsony, which is characterized by the purchase of products at stable prices.
It is also possible that a situation arises in the market as a result of competitive interactions. This is commercial monopsony. It is characterized by an unstable character. For a number of reasons, it collapses very quickly. However, on a balanced market, such a phenomenon can lead to negative consequences, as can a monopoly. For example, artificial knocking down of prices, economic coercion of counterparties to conclude disadvantageous contracts can be carried out.
There are not many pure examples of monopsony. This phenomenon is quite rare, as is absolute monopoly. This situation is possible in small towns or with the participation of the government. It is simply forbidden to purchase certain types of goods to other consumers.
Monopsony Pricing Analysis
Before approaching price analysis in the context of the presented situation, it is necessary to compare the markets of perfect and imperfect competition. In the first case, a large number of sellers and buyers participate in trade relations. The final value of the goods can not be affected by any of them.
On the graph, the demand curve with perfect competition for the products of the manufacturer will take on a horizontal form, and the supply line will be upward. The invariability of the price for the buyer is an indicator that he does not affect it in any way, that is, the necessary conditions for equilibrium are clearly observed.
The situation changes with monopsony in the market. There is no particular need to give examples at the moment. Only one buyer is a participant in a trade relationship. With this state of the market, the supply curve should take on a completely different look. It will no longer be horizontal.
Good examples of monopsony in Russia
The economic situation under consideration exists in the northern territories of the Russian Federation, where closed cities were located. They worked directly for defense. Monopsony is found in those places where city-forming enterprises were erected. One of the most illustrative examples is the Ministry of Railways.
In Russia, state formations act as monopsony. The Department of Defense is the only buyer in the arms market. The same thing happens in rocket science. The Federal Space Agency is engaged in the acquisition of products without any competitors.
Reasons for the appearance and methods of eliminating the phenomenon in the Russian Federation
The reasons for the formation of monopsony in the territory of modern Russia have recently been disclosed. Price liberalization with the dominance of enterprises as buyers in the Russian markets in the regions leads to abuse of the power established in the market. The situation is exacerbated by administrative restrictions that impede the normal operation of business entities.
During special events, a methodology for analyzing regional markets was developed to timely detect abuse of power by business entities. It involves a detailed description of the trading floor and the definition of territorial limits.
The proposed methodology was tested on the example of agricultural markets. It can be used for practical research. The falsity of the macroeconomic approach to conducting a general analysis of the presented markets within the entire state is also given. Examination of trading platforms in the regional context provided an opportunity to see the abuse of monopsony. The main problem is the relatively low level of local competition, associated with the difficulties of transportation and storage of manufactured products.
