Monopsony and Monopsonistic Competition

Abstract

This chapter deals briefly with monopsonistic market structures, for they add little to the substance (though they add much to the variety of illustrative geometry) of our treatment of monopoly and monopolistic competition. For our ‘ideal type’ of monopsony, we shall suppose (a) that there is one buyer of input X; (b) that X is the only variable input that he buys; (c) that X is supplied to him by a purely competitive industry; (d) that he is only one of a large number of knowledgeable sellers of the product that X helps to produce, and (e) that the monopsonist believes that there is no possibility, either now or in the foreseeable future, of other firms deciding to buy X. The relationship between the planned sales of X to the monopsonist and the price that he offers for it is the market supply curve of X. Since the monopsonist is the sole buyer of X, the supply curve of X describes the whole range of purchase plans that is open to him in each period: if he plans to buy relatively much of X he must offer a relatively high price per unit, and vice versa. The quantity that he decides to buy, and therefore the unit price that he must pay for it, will depend on his objective. This choice is illustrated in Figure 15.0.1, where we assume that the monopsonist seeks the maximum profit per period from his operations, that he knows the market supply curve of X, and the relationship between inputs of X and outputs of his product.