Monopsony

In economics, a monopsony is a market with only one buyer. This can be compared to a monopoly in which there is only one seller.

Monopsony, as well as meaning one buyer means that a business with monopoly power can control the supply of the goods that they buy. Rockefeller did it to Union Pacific during the era of the robber barons by making a deal that forced the railroad to pay Standard Oil if they were to ship any oil other than Standard Oil. Monopsony today has transmogrified to mean that if company XYZ holds a controlling share of the market, they can then control the supplying market. For example, a well known wholesaler may go to its suppliers and give them an ultimatum something to the nature of "lower your prices or we'll stop buying from you." Since company XYZ is the "one buyer" then if the supplier says no, they will go out of business.

Monopsony power in essence gives a business the ability to control their cost, similar to how a monopoly can control their price.

Lastly, often with monopoly power in markets comes monopsony power because as well as selling the most they buy the most. Which in turn gives monopsony/monopoly businesses windfall profits when they forcibly lower their costs, and decrease supply, raising profits via both ends of the spectrum.

Examples

• An example of a market with a monopsony is the market for road construction, in which there are many suppliers but only one significant buyer (the government).
• The arms industry is another example when the only (domestic) customer is the state.
• Single-payer healthcare is a system where the government is the only buyer.

See also:

Market forms, Oligopsony