A monopsony is a market where there is only one buyer, or so few buyers that they can control the price of what they’re purchasing. It’s the mirror image of a monopoly. Where a monopoly means one seller can charge higher prices, a monopsony means one buyer can push prices down, particularly the price of labor. The concept matters most in job markets, where a dominant employer in a region can suppress wages because workers have nowhere else to go.
How Monopsony Differs From Monopoly
Most people are familiar with monopoly: one company sells a product, faces no competition, and can raise prices. Monopsony flips that dynamic to the buying side. A monopsonist doesn’t sell to you; it buys from you. And because it’s the only buyer (or one of very few), it has the leverage to pay less than what the product or service is actually worth.
In a monopoly, consumers pay more and get less. In a monopsony, sellers (often workers) earn less and produce more. Both distort what would happen in a competitive market, but they do it from opposite directions. A monopolist controls the supply of goods. A monopsonist controls the demand for labor or supplies.
Why It Matters Most in Labor Markets
Economists today use the term monopsony primarily when talking about jobs. When a single employer, or a small group of employers, dominates hiring in a particular field or region, workers lose bargaining power. The employer can offer wages below what those workers actually generate in value, because there’s no competing offer to drive the pay up.
The economist Joan Robinson identified this gap back in 1933 and called it the “exploitation index,” a measure of how much workers are underpaid relative to their productivity. Modern economists call the same concept a “wage markdown.” If a worker generates $30 an hour in value for a company but earns $22, the difference is the markdown that monopsony power makes possible.
Three forces create monopsony power in labor markets. First, concentration: fewer employers competing for the same pool of workers. Second, search frictions, meaning the real-world costs and difficulty of finding and switching jobs. Third, job differentiation, where positions vary enough in location, schedule, or working conditions that workers can’t easily treat them as interchangeable. You don’t need a literal single employer for monopsony to exist. Any combination of these three factors can give companies outsized control over wages.
The Economics Behind Lower Wages
In a competitive labor market, employers bid against each other for workers, and wages settle near the value each worker produces. A monopsonist doesn’t face that pressure. It can set wages strategically because it knows workers have limited alternatives.
Here’s the key mechanism: when a monopsonist wants to hire more people, it has to raise wages to attract them. But raising the wage for the new hire also means raising it for everyone already employed. So each additional worker costs more than just their individual salary. Economists call this the “marginal factor cost,” and it rises at roughly twice the rate of the wage itself. Because hiring gets expensive fast, the monopsonist hires fewer workers and pays them all less than a competitive market would. The result is both lower employment and lower wages, a lose-lose for workers.
Classic and Modern Examples
The textbook example is the company town. In early 20th-century America, coal mining or mill towns often had a single employer. If you lived there, you worked for that company or you didn’t work. The employer set wages with almost no competitive constraint.
Today, pure single-employer monopsonies are rare, but the dynamics persist in subtler forms. Hospital systems in rural areas often function as near-monopsonists for nurses and specialists. School districts in small communities may be the only employer for teachers with specialized credentials. Military contractors in regions with few defense employers can set terms for engineers and technicians.
Monopsony power also shows up on the product side. Large retailers can exert enormous buying power over suppliers. At least 21 public companies have disclosed that Amazon accounts for 10 percent or more of their total revenue. That dependency gives Amazon significant leverage in negotiations. Suppliers describe annual contract reviews where Amazon pushes for concessions on freight costs, advertising spending, and pricing. One supplier described the process as “a never-ending ask on every line item.” When a company like Applied Optoelectronics generates 58 percent of its sales from a single buyer, walking away from that relationship isn’t a realistic option. Amazon has also used its position to launch competing private-label products. Amazon-branded batteries, for instance, now outsell Duracell on the platform.
Gig Platforms and Digital Monopsony
The gig economy has created a new version of monopsony that doesn’t look like the old company town but functions similarly. Platforms like ride-sharing and delivery apps act as the sole intermediary between workers and customers. The platform sets the pay rate, adjusts it through algorithms, and controls access to work. Workers technically have the freedom to log off, but if a single platform dominates their market, their alternatives are limited.
These platforms use data and algorithms to manage pricing in ways that individual workers can’t see or negotiate. Legal scholars have argued that gig platforms may constitute labor monopsonies, and that antitrust enforcement (not just labor law) may be the right tool to address exploitative practices. In China, researchers have proposed using anti-monopoly law specifically to regulate platform power over gig workers, since existing labor laws weren’t designed to cover algorithmic wage-setting.
How Regulators Are Responding
U.S. antitrust agencies have traditionally focused on protecting consumers from monopoly pricing. But the Federal Trade Commission and the Department of Justice have increasingly turned their attention to the employer side. In 2025, the agencies issued joint guidelines explaining how they assess whether business practices affecting workers violate antitrust laws.
The guidelines state plainly that antitrust laws protect competition for labor, not just competition for goods and services. Regulators now look at whether agreements between companies harm competition for workers, whether mergers reduce the number of independent employers in a labor market, and whether firms with monopsony power impose restrictive or predatory employment terms. Some employer agreements, like wage-fixing pacts between competing companies, are treated as illegal regardless of their measured effects. Others trigger deeper investigation into how they affect pay, mobility, and working conditions.
This represents a significant shift. For decades, antitrust policy largely ignored buyer-side power. The growing recognition that monopsony suppresses wages in the same way monopoly inflates prices has pushed regulators to treat both sides of the market as worthy of enforcement.