Monopoly vs. Monopsony

Most people are familiar with the concept of a monopoly: a single entity controls an aspect of the market such that consumers can only ever buy from that entity. This obviously would tend to cause issues as the single seller can then set the sale price of goods to unreasonable amounts, circumventing the consumer market’s ability to self-correct via basic supply and demand. While we like to think the term monopoly can apply to any large company, the truth is that true monopolies rarely exist. People will often site Google, the De Beers diamond corporation, Pacific Gas & Electric as examples of monopolies, but even these do not satisfy all monopolistic requirements (though there are strong arguments to be made that companies like Alphabet/Google are imposing enough to stifle competition through the continued acquisition of competitors; a separate issue from that of monopolies).

A monopsony on the other-hand is much more common and arguably has a more significant and immediate impact on communities when compared to the threat of monopolies. A monopsony exists when there is a single buyer in a region, meaning the public has only a single entity to which they can sell to. In the prototypical case: a small community is almost entirely employed by the same company. In this case, the consumers would be selling their labor to the company in exchange for wages, but with only one company buying that labor, the company is able to set a buy-price (wage) to unreasonably low levels with little risk of retaliation from the public or potential loss of laborers. After all, if the company is operating in a poor isolated community, the public will necessarily become dependent on the single stream of revenue. Monopsonies are most often found in rural communities, where employment options are already limited. Their existence and predatory effects on rural America is one of the stronger arguments I’ve heard for the existence of a federally imposed minimum wage. I believe that a federal minimum wage should not be used to remove all bargaining power within the labor market, but should be present to set a reasonable wage floor, thereby stifling a monopsony’s stranglehold on a community.

My hope with this piece is to spread knowledge of a detrimental market phenomenon that disproportionally effects small, rural, and conservative communities which can be effectively addressed by establishing a federal minimum wage and providing a needed service and improvement to quality of life.

A fair warning: while invoking knowledge of monopsonies is a good argument for the existence of a minimum wage, it alone is not a good nor a complete argument for a $15 minimum wage. My hope is to use this information to combat the conservative rhetoric that NO minimum wage is actually a good idea: that market forces will always force wages to settle to what workers are willing to receive.



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