monopsony
/ muh-NOP-suh-nee /
Most people have heard of a monopoly — one seller with no rivals, like a single water company in a town. A monopsony is its mirror image: a market with one dominant buyer instead of one dominant seller. The classic case is the labour market of a 'company town' where a single big employer is, in practice, the only place to work, so workers have nowhere else to take their labour.
When a buyer has this power, it can push the price down, just as a monopoly seller pushes the price up. A monopsony employer faces the whole supply of labour, so if it wants to hire more workers it has to raise the wage for everyone — which makes adding workers expensive at the margin. To avoid that, it deliberately hires fewer workers and pays a lower wage than a competitive market would. The striking result is that here a well-designed minimum wage or a union can actually raise both wages and employment, because they stop the employer from holding the wage artificially low — the opposite of what the simple competitive model predicts.
True one-employer towns are rare today, but economists increasingly think milder monopsony power is widespread. Whenever it is costly or hard for workers to switch jobs — because moving is expensive, skills are specialised, jobs are few, employers collude or use non-compete clauses, or information is poor — employers gain some power to pay below a worker's true value. This is one of the leading modern explanations for why wages can lag behind productivity and why minimum-wage rises don't always cost jobs. The caveat is measuring it: real labour markets sit somewhere between perfect competition and pure monopsony, and how much monopsony power exists in any given case is an empirical, contested question.
In a small town the only hospital is the one realistic employer for nurses. Because nurses can't easily work elsewhere, the hospital can keep wages below what their skills would fetch in a big city — a textbook case of monopsony power over labour.
One dominant buyer of labour can hold wages down — the reverse of a monopoly seller raising prices.
Monopsony flips a famous result: under it, a well-set minimum wage or a union can raise wages and employment at once. That is why blanket claims that minimum wages always destroy jobs are too simple.