Monopsony: When a Buyer Has the Market Power
We hear a lot about monopolies. Their mirror image, where one buyer dominates, is just as important, especially in labour markets.
By Felix Narayan | Sep 28, 2026 | 5 min
A monopoly is a single seller facing many buyers. A monopsony is the reverse: a single buyer facing many sellers. The dominant buyer can push prices down below what a competitive market would pay.
The idea has become central to debates about wages.
I Classic examples
The textbook example is a company town, where one mine or mill is the only significant employer. Workers have nowhere else to go, so the employer can pay less than they would earn in a competitive labour market.
II Modern monopsony
- — Large employers in rural areas with few alternatives
- — Supermarkets with strong buying power over farmers and suppliers
- — Big platforms that set terms for drivers, sellers, or creators
- — Specialist workers whose skills only a few firms need
III Why it matters for wages
In a perfectly competitive labour market, a minimum wage set above the market rate would reduce employment. In a monopsony, a moderate minimum wage can raise both pay and employment, because the employer was previously holding wages artificially low. This is one reason economists debate minimum wages so actively.
IV Non-compete clauses
Contracts that stop workers moving to competitors increase employers’ buying power. Several governments have restricted or considered restricting non-compete clauses for this reason.
This is general educational information about economics, not financial, investment, or tax advice. Consult a qualified, licensed professional before making financial decisions.
Further reading
- 1. Natural Monopolies: Why Some Markets Have Only One Supplier
- 2. Monopoly, Oligopoly, and Competition: How Market Structure Affects Prices
- 3. Barriers to Entry: Why New Competitors Struggle