There are two cases in which market power exist in factor markets, particularly in labor markets. The first case we'll consider is that of monopsony. A monopsonist is like a monopoly buyer rather than the monopoly seller's we've seen before.

A firm is a monopsonist if it is the only employer which hires some particular factor of production. You either work for this firm or you don't if you're supplying labor in such a market. This gives the firm some market power in hiring just as being a monopoly seller gives a firm some market power in selling.

Specifically a monopsonist faces the entier factor supply curve when hiring just as a monopoly buyer faces the entire market demand curve when selling. As we shall see this makes all the difference.

Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved