DEFINITION: A monopsony is a market that is heavily or exclusively dominated by a single buyer.

ETYMOLOGY: From the Greek words for “single” (monos) and “to buy” (opsōneō). “Monopsony” is the opposite of “monopoly.”

USAGE: The term “monopsony” is less well known than “monopoly.” However, the phenomenon itself is relatively common in modern industrial societies.

A monopsony arises primarily in a situation in which a company first creates a monopoly over a market, perhaps by virtue of some technological innovation. Then, the company decides to outsource its innovative supply needs, bringing a brand new supply chain into existence. In that case, there may be no other buyer for a given supplier’s products than the original contracting company, thus creating a monopsony.

In this way, the same company that creates a monopoly over one market may create a monopsony over another one. In this respect, monopolies and monopsonies may be viewed as two sides of the same coin.

As an example, governments are said to hold a monopoly on the legitimate use of violence in society (meaning not that they sell it, but that they are authorized to use it). However, governments do not typically build weapons systems themselves. Rather, they subcontract the fabrication of the weapons they require to private companies. Those companies, then, often have no other customer for their products that the government. This type of market relationship constitutes a classic monopsony.