Talk:Monopsony

- Im changing the intro section to include a reference to "monopsony-power" being used to refer to situations of not only a single buyer, but where individual buyers face an upwardly sloping supply curve. I think this is important because when one talks of "monopoly power" it is taken for granted that one can mean a situation with dominance (but not single buyer), but too many people seem to think "monopsony power" refers only to a single buyer.

I don't think the analysis of why wages would be maximized under perfect competition was correct. IMO, there was unjustified emphasis on this assertion that, for reasons unclear, the supply of labor would be perfectly elastic in a competitive market, though not under a monopsony. But the labor supply curve is independent of what's happening on the demand side. What actually changed was that the prior monopsonist could no longer maintain his low wages because his employees would be poached by a competitor. Competition drives wages to equilibrium. --Rmalloy 04:41, 30 September 2006 (UTC)Reply

Monopsony power – when it exists – can be measured, through the price-elasticity of the faced supply function. As far as I know, no such measures exist to justify the claims made in the article about monopsony in various firms and markets. Unless some is provided, such claims should perhaps be treated as arbitrary:Mario 28 June 2005 14:43 (UTC)

Someone has added a bit which says: "Monosophonies of course occur in goods only purchased by the government, such as roads and certain weapons (thouigh the former may face competition between levels of government)". Mispelling "Monosophonies" a part, this is true for the "naked" definition, but not for the model. The latter refers in fact to a purchaser who is a profit maximiser. It is only within such model that monopsony leads to a well-defined and measurable allocation problem. Thus the added bit appears to be essentially misleading. I'll wait a few days and then, if nobody produces some counter-argument, I'll remove it. -- Mario 17:47, 1 August 2005 (UTC)Reply

I came here looking for exactly this sort of information: what sorts of market problems occur when government is the monopsonist. --Error28 19:00, 19 March 2007 (UTC)Reply

I'd like to see some historical examples here, if possible.

What about Wal-mart?

For info on Wal-Mart as monopsonist, see Barry C. Lynn's article in the July 2006 Harper's

That's quite a stretch. In order o fit the definition, Sears, Target, Zellers, Kmart, and every store that sells good in the United States would have to go out of business. BTW Damn you Walmart for selling affordable goods to the population! We'll get you for that. JettaMann (talk) 02:48, 15 September 2008 (UTC)Reply

Also need to include monopsonies in non-profit / government sectors. School districts are historical monopsonies for the labor market of teachers. However, some are losing their market power in the face of charter school competition. Welsch (2011 "Contemporary Economic Policy") — Preceding unsigned comment added by 76.174.204.144 (talk) 18:50, 27 August 2011 (UTC)Reply

Could we please have a graph of a competative labor market, so as to be able to compare it to the monopsony graph.

Ditto for having examples from product markets and not just labor markets. 129.10.244.54 02:43, 4 December 2006 (UTC)Reply

Is it just me or does this article sound like an academic paper designed for economists? Would it be possible to water down the syntax so the average joe like myself can understand it?

Agreed. I thought I was an educated bloke until I met the term "upwardly-sloping supply curve" in the very first sentence of the overview. Jargon-laden econonomics and hair-splitting definition are fine for later sections, but the introductory portions need to become more encyclopedic. I'll see if I can at least clean up the introduction for general readers. SpaceToast (talk) 02:58, 4 January 2009 (UTC)Reply

Theory is all well and good, but how does this play out in terms of historical examples? Interesting ones outside the staid realms of modern-day mega-corporations would be wonderful. To what extent can the Dutch East India Company or British East India Company be considered to have been monopsonistic? LordAmeth 19:02, 5 June 2007 (UTC)Reply

I was surprised to find no discussion of the possible penalty a monopsonist might suffer. The example I have in mind is that of NASA which has to buy launchers (rockets) from US companies. There are only two builders of large launchers at present, Boeing and Lockheed-Martin. Their prices are high compared with non-US suppliers, eg the Russian Proton launcher. To some extent NASA is unable to bargain for better prices because there are no other customers to set a market rate. The non-US launch companies don't seem to provide this 'reality check' on prices. NASA's monopsonist position is only approximately correct because the US military is the largest customer for these launchers, but as both are branches of the US government there is at root only one customer. Has this monopsonist penalty effect been discussed in the economics literature? 131.142.52.215 19:13, 4 December 2007 (UTC)Martin EReply

I am a beginner student of economics and it was not immediately obvious to me why a monopsonic employer would need to increase the wage rate of all employees to add a new worker. I looked this up elsewhere and determined that this can be more easily and clearly explained as follows:

It should be noticed that this marginal cost is higher than the wage w(L) paid to the new worker by the amount

(Formula omitted)

This is because the firm has to increase the wage paid to all the workers it already employs whenever it hires an extra worker. As it is the sole buyer of all labor in the industry, attracting new workers requires increasing the overall wage rate so that new laborers enter the industry.

Is this sensible? If so, should it be added to the explanation? —Preceding unsigned comment added by 71.172.243.190 (talk) 01:47, 13 October 2010 (UTC)Reply

I came away from the page more confused than before going to it. Where is the explanation that gives a good overview without going into minute details? Why is most of the article focused on a single example (labor) using equations, graphs, and details meaningless to someone looking for a good overview of the term? (I'm sure there's probably flags that should be added to show that this article needs fixing, but I'm not a wikipedia junkie and don't know how to do that.) Contrast this page with Oligopoly http://en.wikipedia.org/wiki/Oligopoly — Preceding unsigned comment added by 173.228.6.77 (talk) 05:13, 26 May 2011 (UTC)Reply

I concur with the anon commenter 173.228.6.77. The article has a title that would imply it would cover monopsony more broadly, which could occur in many types of markets, and then explicates only the labor market aspects of that concept. N2e (talk) 16:10, 6 September 2012 (UTC)Reply

"A monopoly is an individual seller selling to multiple buyers."

   Arrrrrrrrrrrrgh!  

"A monopoly is an individual seller selling to multiple buyers."

Right......................

So one person, selling their car to the public on craigslist, is a monopoly...............

DOH!

PEOPLE - PLEASE THINK ABOUT WHAT YOU ARE SAYING!!!!!!! REMEMBER THE READERS CAN ONLY READ THE WORDS THAT ACTUALLY APPEAR ON THE PAGE. THEY CAN'T READ ANY OF THE INFORMATION THATS IN YOUR HEAD.

Dear authorS, (I deliberately did not look up who wrote that part because this issue is one that affects so many articles on WP that one specific person doing it it is not the problem. Its a systemic issue! )

Please remember that the readers who do not initially understand or who are not already familiar with this topic area WILL NOT UNDERSTAND that you have IMPLICITLY ASSUMED that the reader will understand that inside your head, YOU are adding the phrase "IN AN OTHERWISE WELL POPULATED MARKET, WHERE MARKET MEANS A LARGE NUMBER OF BUYERS AND/OR SELLERS TRADING IN THE SAME PRODUCT AREA" to your definitions and descriptive phrases.

GRRrrrr. grrr.

-) — Preceding unsigned comment added by 24.63.225.18 (talk) 22:28, 30 November 2011 (UTC)Reply

This is what we have in our textbooks... and it is because it makes sense! MR=p*MPL and not MRP, which is equal to MR*MPL (what you're basically saying is MR=MR*MPL, which is nonsense). Source: Hal Varian's textbook of microeconomics. — Preceding unsigned comment added by Ernetas (talk • contribs) 06:52, 19 November 2013 (UTC)Reply

Dr. Ransom has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

This is generally correct. It could use some reference to support parts of the article.

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

Dr. Ransom has published scholarly research which seems to be relevant to this Wikipedia article:

• Reference 1: Ashenfelter, Orley & Farber, Henry & Ransom, Michael R., 2010. "Modern Models of Monopsony in Labor Markets: A Brief Survey," IZA Discussion Papers 4915, Institute for the Study of Labor (IZA).

• Reference 2: Ransom, Michael R. & Sims, David P., 2009. "Estimating the Firm's Labor Supply Curve in a "New Monopsony" Framework: School Teachers in Missouri," IZA Discussion Papers 4271, Institute for the Study of Labor (IZA).

ExpertIdeasBot (talk) 17:04, 19 May 2016 (UTC)Reply

Could some layman's explanation be included? Perhaps the scope of the article is too complicated, or maybe it would look jumbled having both, I don't know. Just bringing this up as a thought. 63.248.183.82 (talk) 23:13, 11 October 2016 (UTC)Reply

I looked and saw there is a Simple English article on Monopsony. Although currently there is just a simple brief explanation, perhaps that's where I should look to. Ignore my previous thought. 63.248.183.82 (talk) 23:16, 11 October 2016 (UTC)Reply

The article seems to use the word "monopsonistic" to mean both monopsonistic (many consumers to few producers) and monopsony-ish. This is a common mistake with "monopoly," people misuse "monopolistic" to mean "monopoloid." Is "monopsonoid" a real word? If not, can we, as the people who continuously invent the English language, make it one? Because it clearly should be. Daniel J. Hakimi (talk) 21:35, 27 December 2016 (UTC)Reply

Hi @Loraof,

I made a small change to your edits and was interested in your feedback. The phrasing you added implied (in my reading) that labor monopsony power was widely researched or supported. I'm not sure this is the case, and I think what you meant was that when people talk about monopsony power they are most commonly discussing it in context of labor markets rather than labor market monopsony power is the most frequently cited and researched subject.

Thoughts?

Squatch347 (talk) 16:35, 30 January 2018 (UTC)Reply

What I meant was that economists have researched monopsonistic labor markets more than they have researched other monopsonistic markets. I don’t have a reference for this, but it seems to me that it must be true – I can’t imagine what other such market there would be this much research on, unless it’s the US market for fighter planes, etc. with the US military as the only buyer. (Also, the article’s Examples section mentions Amazon as a retailer that is almost monpsonistic in the new-books market.) Loraof (talk) 17:57, 30 January 2018 (UTC)Reply

That makes sense. Would this edit make sense?

"The most commonly researched or discussed monopsony context is that with a single buyer of labor in the labor market."

Squatch347 (talk) 18:18, 31 January 2018 (UTC)Reply

Looks good — go ahead and put it in. Thanks! Loraof (talk) 17:36, 1 February 2018 (UTC)Reply

I've relied heavily on the original text, added some references as requested and tried to make the language a bit more accessible while also offering the more technical detail for those who want it. Interested in any comments or feedback.

Hi, I took a look at the below section. The line about minimum wage reducing employment should be deleted. The study cited found some individuals for whom employment was decreased, but specifically concluded something very different from what is typed here. The conclusion shows that the impact of a minimum wage is different for different demographics, and no single conclusion could be drawn. The implication that "it is generally agreed" that minimum wage "reduces employment" is not supported at all from the source provided for the population at large. Quotes directly from the cited source:

"When we incorporate information on state EITCs and state variations in welfare reform, we continue to find little evidence that minimum wages affect employment."

"The evidence reveals policy effects that vary quite sharply across different groups"

"Given the variation in effects, there is no clear policy prescription"

I suggest the opening paragraph be edited to simply read:

A binding minimum wage can be introduced either directly by law or through collective bargaining laws requiring union membership. In the presence of monopsony power within the labor market, a minimum wage could increase employment.

24.178.35.213 (talk) 13:31, 26 June 2020 (UTC)Reply

 

A binding minimum wage can be introduced either directly by law or through collective bargaining laws requiring union membership. While it is generally agreed that minimum wage price floors reduce employment (https://www.epionline.org/wp-content/studies/Neumark_2007.pdf), in the presence of monopsony power within the labor market the effect is reversed and a minimum wage could increase employment.

This effect is demonstrated in the diagram on the right.

Here the minimum wage is w'', higher than the monopsonistic w. Because of the binding effects of minimum wage and the excess supply of labor (as defined by the monopsony status), the marginal cost of labor for the firm becomes constant (the price of hiring an additional worker rather than the increasing cost as labor becomes more scarce) (Econ log dot econ lib dot org /archives/2015/02/the_minimum_wag_4.html (Pending white list)). This means that the firm maximizes profit a the intersection of the new marginal cost line (MC' in the diagram) and Marginal Revenue Product line (the additional revenue for selling one more unit)(same white list, /archives/2013/02/the_minimum_wag_2.html). This is the point where it becomes more expensive to produce an additional item than is earned in revenue from selling that item.

It should be noted that this condition is still inefficient compared to a competitive market. The line segment represented by A-B shows that there are still workers who would like to find a job, but cannot due to the monopsonistic nature of this industry. This would represent the unemployment rate for this industry. This illustrates the there will be deadweight loss in a monoposonistic labor environment regardless of minimum wage levels, however a minimum wage law can increase total employment within the industry.

More generally, a binding minimum wage modifies the form of the supply curve faced by the firm, which becomes:

${\displaystyle w={\begin{cases}w_{min},&{\mbox{if }}w_{min}\geq \;w(L)\\w(L),&{\mbox{if }}w_{min}\leq \;w(L)\end{cases}}\,\!}$ 

where ${\displaystyle w(L)}$  is the original supply curve and ${\displaystyle w_{min}}$  is the minimum wage. The new curve has thus a horizontal first branch and a kink at the point

${\displaystyle w(L)=w_{min}\,\!}$ 

as is shown in the diagram by the kinked black curve MC' S (the black curve to the right of point B). The resulting equilibria (the profit-maximizing choices that rational companies will make) can then fall into one of three classes according to the value taken by the minimum wage, as shown by the following table:

Yet, even when it is sub-optimal, a minimum wage higher than the monopsonistic rate raises the level of employment anyway. This is a highly remarkable result, because it only follows under monopsony. Indeed, under competitive conditions any minimum wage higher than the market rate would actually reduce employment, according to classical economic models and the consensus of peer-reviewed work (https://www.epionline.org/wp-content/studies/Neumark_2007.pdf). Thus, spotting the effects on employment of newly introduced minimum wage regulations is among the indirect ways economists use to pin down monopsony power in selected labor markets. This technique was used, for example in a series of studies looking at the American labor market that found monopsonies existed only in several specialized fields such as professional sports and college professors (http://eh.net/encyclopedia/monopsony-in-american-labor-markets/,http://www.dartmouth.edu/~dstaiger/Papers/2010/staiger%20spetz%20phibbs%20monopsony%20jole%202010.pdf)

It was noted that the empirical evidence section didn't cite any sources and does seem to be an academic discussion of effects rather than a review of the evidence. Here is my suggested update. I'll, of course, cite the sources in the correct format in the published form. Let me know if there are any concerns. Squatch347 (talk) 18:03, 2 April 2018 (UTC)Reply

The simpler explanation of monopsony power in labor markets is barriers to entry on the demand side. Such barriers to entry would result in a limited number of companies competing for labor (oligopsony). If the hypothesis was generally true, one would expect to find that wages decreased as firm size increased or, more accurately, as industry concentration increased. However, numerous statistical studies document significant positive correlations between firm or establishment size and wages. These results are often explained as being the result of cross-industry competition. For example, if there were only one fast food producer, that industry would be very consolidated. But that company wouldn't be able to drive down wages via monopsonistic power if it were also competing against retail stores, construction, and other jobs utilizing the same labor skill set. This finding is both intuitive (low-skilled labor can move more fluidly through different industries) and supported by the data which found that monopsony effects are limited to professional sports, and perhaps nursing, fields where skill sets limit moving to comparably paid other industries (http://eh.net/encyclopedia/monopsony-in-american-labor-markets/).

However, monopsony power might also be due to circumstances affecting entry of workers on the supply side (like in the referenced case above), directly reducing the elasticity of labor supply to firms. Paramount among these are industry accreditation or licensing fees, regulatory constraints, training or education requirements, and the institutional factors that limit labor mobility between firms, including job protection legislation.

An alternative that has been suggested as a source of monopsony power is worker preferences over job characteristics (Bhaskar and To, 1999; Bhaskar, Manning and To, 2002). Such job characteristics can include distance from work, type of work, location, the social environment at work, etc. If different workers have different preferences, employers could have local monopsony power over workers that strongly prefer working for them.

Empirical evidence of monopsony power has been relatively limited. In line with the considerations discussed above, but perhaps counter to common intuition, there is no observable monopsony power in low-skilled labor markets in the US (http://eh.net/encyclopedia/monopsony-in-american-labor-markets/). Though there has been at least one study finding monopsony power in Indonesia due to barriers to entry in developing countries (http://conference.iza.org/conference_files/worldb2011/brummund_p6819.pdf). Several studies expanding their view for monopsony power have found economic and labor mobility in the US precludes any detectable monopsony effects (https://www.researchgate.net/publication/246546086_Monopsony_Power_Pay_Structure_and_Training) with the notable exceptions of professional sports (http://eh.net/encyclopedia/monopsony-in-american-labor-markets/) and (with some disagreement (http://www.dartmouth.edu/~dstaiger/Papers/2010/staiger%20spetz%20phibbs%20monopsony%20jole%202010.pdf) ) nursinghttp://www.angelfire.com/wizard/moti_gross/dl_files/labor/nurses.pdf, https://digitalcommons.trinity.edu/cgi/viewcontent.cgi?article=1011&context=hca_faculty). Both of these industries have highly specialized labor conditions and are generally not substitutable.

https://en.wikipedia.org/w/index.php?title=Monopsony&diff=prev&oldid=855733711&diffmode=source

@Janestonezy9: @Squatch347:

Hi, after looking at the history I feel the article is better with the cited work. Reason for the revert was that the scholar in question was not notable enough, but I feel this may not be the best way to decide whether to include it or not. Note the citation itself is not the article subject, should it be required to have the same notability as a full article?

Also, as a published work of research I feel it should be weighed whether it is a valid work or not. On this I do not feel qualified, hence I am not undo the revert, and am opening discussion. It appears to be well cited, by some popular works as well, but as to its veracity / reproducible / scientific accuracy I cannot comment.

https://scholar.google.com/scholar?start=0&hl=en&as_sdt=0,33&sciodt=0,33&cites=302801337803684634&scipsc=

Tacticomed (talk) 00:47, 27 August 2018 (UTC)Reply

Hi @Tacticomed:, I appreciate you bringing up the topic. When discussing academic topics I think we are bound to try and only use mainstream or well excepted examples to keep the article encyclopedic. IE to present readers with mainstream, accepted examples of the phenomenon. To include a broader set, including proposed examples still being discussed in literature, or those (I think like this one) that weren't broadly accepted, adds confusion by pointing the reader to a scenario that might not actually demonstrate the principle the page is explaining. I think we should be cautious with examples broadly to ensure we are accurately reflecting the article's topic.

TBH, I'd like to remove the Krugman paragraph too since it was a throw away argument made in the NYT's opinion section rather than an academic, peer reviewed, source.

Thoughts? Am I missing the boat on my interpretation above? Squatch347 (talk) 10:48, 27 August 2018 (UTC)Reply

Hi @Squatch347:, thank you for your reply. After taking your comment into consideration I am of the opinion the Examples section should perhaps be removed altogether. The article does a decent job of explaining the meaning on the word, and examples leaves room for interpretation where I feel WP should strive for clarity and certainty. I agree Krugman should be removed, I will go ahead and remove the section. Tacticomed (talk) 20:07, 9 September 2018 (UTC)Reply

Hi, I took a look at the minimum wage section. The line about minimum wage reducing employment should be deleted. The study cited found some individuals for whom employment was decreased, but specifically concluded something very different from what is typed here. The conclusion shows that the impact of a minimum wage is different for different demographics, and no single conclusion could be drawn. The implication that "it is generally agreed" that minimum wage "reduces employment" is not supported at all from the source provided for the population at large. Quotes directly from the cited source:

"When we incorporate information on state EITCs and state variations in welfare reform, we continue to find little evidence that minimum wages affect employment."

"The evidence reveals policy effects that vary quite sharply across different groups"

"Given the variation in effects, there is no clear policy prescription"

I suggest the opening paragraph be edited to simply read:

A binding minimum wage can be introduced either directly by law or through collective bargaining laws requiring union membership. In the presence of monopsony power within the labor market, a minimum wage could increase employment. — Preceding unsigned comment added by 24.178.35.213 (talk) 23:14, 25 July 2020 (UTC)Reply

I think the issue with your reading is that you are conflating two separate issues with the general finding. The impact of the EITC policy, which is a tax policy, not a wage policy; and findings of disemployment rates in some small populations as opposed to the general pressure. This article is referring to the general downward pressure in employment created by minimum wage laws (which this paper supports) and how that trend reverses in monopsonistic environments.

For example, your first quote is specifically referencing the effects on women in high EITC scenarios, it comes in a paragraph discussing the different trends between male and female employment in higher minimum wage environments. It does not reflect the general downward pressure. You'll notice that both in Table 2 and Table 5 they show negative employment rates correlated with minimum wage increases when you look at total employment.

From the paper: "The author finds, consistent with earlier research, that the most negative minimum wage employment effects are felt by at-risk groups, such as the less-skilled and young minority males. He also finds that there may be positive minimum wage effects on the employment of young minority women aged 20-24 when combined with EITC policies. However, this benefit comes at a substantial cost to other groups."

And: "For teens the estimated elasticity is −.16. This is in the typical “consensus” range of minimum wage elasticities (Brown, 1983; Fuchs et al., 1998)," Squatch347 (talk) 11:13, 28 July 2020 (UTC)Reply

I have attempted to make this article clearer and easier to read. I have found multiple sources and ammended some sections that required further citation and context. Let me know if any other areas could use some more work.Relox1 (talk) 14:46, 31 October 2020 (UTC)Reply

These were good edits, thanks for the contribution. I made some small changes to the paragraph you added about dynamic monopsony models (which was an excellent addition btw). I'm not sure we should include the UA link in that para though as it is a set of teaching notes, not a RS. Squatch347 (talk) 18:16, 5 November 2020 (UTC)Reply

Hi Assessing the article for an Economics University course. I have listed some possible amendments below and will continue to run through whole article. Let me know what if you think I've over edited or can improve any sections.

Rewording of first paragraph for ease of reading.

INTRO

In economics, a monopsony (from Ancient Greek μόνος (mónos) "single" + ὀψωνία (opsōnía) "purchase") is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers.

Followed by:

Current: In the microeconomic theory of monopsony, a single entity is assumed to have market power over sellers as the only purchaser of a good or service, much in the same manner that a monopolist can influence the price for its buyers in a monopoly, in which only one seller faces many buyers.

Propossed: The microeconomic theory of monopsony assumes a single entity to have market power over all sellers as the only purchaser of a good or service. This is a simular power to that of a monopolist, which can influence the price for its buyers in a monopoly, where multiple buyers have only one seller of a good or service available to purchase from.

HISTORY

Reference for first paragragh History. I realise there is link to the Authors Wikipage. Does it still require a reference?

Current: Monopsony theory was developed by economist Joan Robinson in her book The Economics of Imperfect Competition (1933)

Proposed: Monopsony theory was developed by economist Joan Robinson in her book The Economics of Imperfect Competition (1933)

Current: A classic theoretical example is a mining town, where the company that owns the mine is able to set wages low since they face no competition from other employers in hiring workers, because they are the only employer in the town, and geographic isolation or obstacles prevent workers from seeking employment in other locations.

Proposed: A classic theoretical example is a mining town, where the company that owns the mine has no external competition for labour hire, as they are the only employers in the town. Due to the lack of competion in the labour market, the towns geographic isolation or other obstacles prevent workers from seeking employment elsewhere the mining company is able to set the wage lower than would be expected in a competitive market. Relox1 (talk) 05:28, 30 October 2020 (UTC)Reply

Still requiring some referrencing particurlary in the Welfare Implication section. Some sections could benifit from re-wording as whole paragraph: individual concepts withing seem disjointed.Relox1 (talk) 05:28, 30 October 2020 (UTC)Reply

Even just a brief mention of other examples would hugely improve the article Transient Being (talk) 17:56, 31 March 2024 (UTC)Reply

I think this is a fair criticism. The challenge is that most of the work in the field centers around the labor market given that there are so few cases of monopsony in the data, even the labor market has only one or two real examples.

There might be some examples of government purchasing of uranium we could add?

Squatch347 (talk) 16:34, 2 April 2024 (UTC)Reply