Difference Between Monopoly and Monopsony

Monopoly vs Monopsony

Ideal market conditions are not existent everywhere and there are situations where the market is skewed either towards buyers or towards sellers. Monopoly is referred to a market condition where there is only one producer in a particular industry and the consumers really have no option but to buy his products or service. This is an ideal condition for the player as he can dictate the terms and set the prices on his whim. The opposite condition is Monopsony where there are many sellers but a single buyer which is also an imperfect market condition. It is obvious that neither monopoly nor Monopsony is ideal for consumers. There are some similarities in monopoly and Monopsony but there are differences also that will be talked about in this article.

Both monopoly and Monopsony are conditions that are normally not found in an economy. These are situations that are not desirable for people as they give a free hand to one party which establishes hegemony in the market. Take for example electricity distribution in a country under the control of government. As consumers have no options but to use the services provided by the government, this is a perfect example of a monopoly as government can fix the prices of electricity upon its whim (there is no competition) and consumers have to bear the services even if they are of poor quality and not at all satisfactory.

On the other hand, consider a poor country with lots of illiterate, unemployed people. If these people are working as labor but only have a single buyer of their services, this is considered as a Monopsony. People are forced to work at rates decided by the monopsonist and they also have to bear the terms and conditions set by him. There are industries where there are several suppliers but only a single buyer. One perfect example is defense equipments where there are many companies making these equipments but they eventually have to sell to the government which is the only buyer.

In brief:

Monopoly vs Monopsony

• Monopoly and Monopsony are imperfect market conditions that are just opposite of each other.

• While in monopoly there is one manufacturer or service provider controlling the industry, in Monopsony, there are several producers but a single buyer.

• Both are not good for people as they allow hegemony of the producer in monopoly and that of buyer in Monopsony.

• Monopsony is commonly seen in the labor market where there are many laborers but only one buyer to use their services.