What's the difference between a monopoly and a monopsony?

The difference between a monopoly and a monopsony lies in the entity that is being singularly controlled. A monopoly exists when a single individual or organization is the sole supplier of a particular good or commodity, whereas a monopsony refers to control of the market through which specific goods or services are purchased.

Both signify conditions of imperfect competition, in which a single entity can influence what would otherwise be a free market with high barriers to entry.

Monopolies effectively eliminate economic competition for production of a particular good, including possible substitutes for it. They also prevent external influence on the selling price, resulting in high profits. Similarly, monopsonies position themselves as the sole buyer for a particular good. A monopsony is thus able to use competition among suppliers to its advantage, driving down the selling price for the given good. The existence of either a monopoly or a monopsony is sometimes attributed to a lack of government regulation in the form of antitrust laws.

Walmart, known for its high-growth business model, has been called a monopsony of the discount retail market, acting as the primary buyer for low-cost goods. Walmart’s tendency to swallow or outpace its competitors has had a similar effect on the supplier markets as well, eliciting a series of antitrust cases against the company. The so-called “Walmart effect” may keep employee productivity high and prices to consumers low, but it also has the potential to reduce wages and competition. In this example, it may be possible that the company is acting as both a monopsony and a monopoly.