Reviewed by Sep 30, 2020| Updated on
A monopsony is an economic condition in the markets in which there is a solitary purchaser. This buyer is referred to as the monopsonist. Much like monopoly, monopsonies too indicate flaws in the market conditions. The only difference between a monopsony and monopoly is the entity controlling the situation.
When the market is under a monopsony, the market is dominated by a single buyer while, in the case of monopoly, a single seller is seen in the market. Both monopoly and monopsony can occur due to various underlying issues and indicates a severed market condition.
In India, the Central Government is the sole buyer or monopsonist when it comes to the domestic defence manufacturing sector. This has made it necessary to specialise and commit for a long period to invest in the development of products and their maintenance.
The Defense Research and Development Organisation (DRDO) is responsible for military research and development in India, and it is under pressure as it needs to cater to all requirements of the Indian defence. It has now gone into troubled waters, and the Ministry of Defense should support the private sector in manufacturing to relieve the DRDO from being under immense pressure.
In a monopsonistic market, a single large purchaser will dominate the market. Due to this fact, that purchaser (monopsonist) will have the power of wealth.
For instance, monopsonist being the sole or primary provider of jobs in a particular sector, the monopsonist will assume the power to set wages. Furthermore, they will have the power of bargaining because they are in a position to negotiate on the prices with terms with the suppliers.
Since there is no other buyer in the market, the manufacturers and suppliers will be having no choice but to sell their products to the monopsonist at the terms and prices set by them. This is not good for the economy and market as the prices will be as determined by the monopsonist and may not be fair.