Monopsonistic Markets

Definition

Monopsonistic markets refer to markets where there is only one buyer but multiple sellers. In these markets, buyers have market power and can influence prices and quantities purchased.

Analogy

Imagine you're selling lemonade at your school fair, but there's only one person who wants to buy lemonade - they have all the power! They can negotiate lower prices because they know you don't have any other customers.

Related terms

Monopoly Power: Monopoly power refers to when a single seller has control over a particular market due to barriers preventing competition. In monopsonistic markets, buyers have monopoly power.

Market Equilibrium: Market equilibrium occurs when the quantity demanded equals the quantity supplied. In monopsonistic markets, the buyer's market power can disrupt this equilibrium and lead to inefficient outcomes.

Bargaining Power: Bargaining power refers to the ability of a party to negotiate favorable terms in a transaction. In monopsonistic markets, buyers have more bargaining power compared to sellers due to their market dominance.