Monopsonists
The special case of the monopsonist is an important one. A monopsonist is a single buyer of labour, such as De Beers, the diamond producer, and the major employer of diamond workers in South Africa. Monopsonists are common in some small towns, where only one large firm provides the majority of employment.
Because of their buying power, monopsonists are able to influence the price they pay compared with buyers in more competitive markets. Pure monopsonists are rare because suppliers normally have alternative outlets for their good or service. However, monopsony power is significant in certain sectors of the economy.
Two areas are worthy of mention, including the monopsony power of the large supermarkets, who can dictate terms to smaller suppliers, and the monopsony power associated with buyers oflabour in the labour market.
In the case of supermarkets, as with other dominant buyers, the price paid to suppliers is often forced down so that the supermarkets can reduce costs and generate higher profits. Alternatively they can reduce their prices, assuming they operate a cost plus pricing strategy. In turn this can threaten rival suppliers, so increasing the monopsony power of the major supermarkets. In an increasingly globalised world the supermarkets are free to source supplies from around the world, thus making it difficult for smaller suppliers to compete.
In the case of single buyers of labour, a similar pattern can be found. Large employers, like the NHS and the Post Office, have the potential power to determine the wage rate, but the rise of labour unions has acted as a counterweight to the power of the monopolistic employer. In addition, NHS and Post Office workers have the freedom to seek work in other industries, or with other service providers.
The monsopsonist, wages and employment
Because the monopsonist is the only employer in the industry, if it wishes to employ more labour it must raise the marginal wage to attract new workers into the industry. The supply curve of labour is not the same as the marginal costs of labour because, as the only employer, the monopsonist must pay all existing workers the same rate as the new workers. Hence, when attracting new workers, the marginal cost of labour is greater than the existing average cost of labour.
