Last Updated 10 Mar 2020

Monopsony and Taste-for-Discrimination Model

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(1) Monopsony is an economic situation when there are a number of sellers but only one buyer (monopsonist) in the market. Monopsony can be considered as the model symmetrical to market monopoly, and at monopsonic market not the sellers but buyer can determine the price of the goods in the market. A monopsonist can regulate market price by varying the amount of goods he buys. That is why the price which monopsonist is ready to pay for the goods will be lower than it can be in any competitive market.

The concept of Monopsony was introduced in 1933 by Joan Violet Robinson, a British economist and creator of the theory of imperfect competition. She conducted a series of researches on different economic issues, the results of which were publicized in her book The Economics of Imperfect Competition.  She also studied the dynamics of MC and MRP curves in the situation of monopsonic market and compared those with the dynamics of the corresponding curves in terms of competitive markets.

(2) Taste-for-Discrimination model was created by an American economist Gary Becker, who is famous for his studying and interpreting economic concepts from sociological points of view. The model was introduced in the 1950s and described the behavior of employer, which is ready to have extra expenses in order to be associated with some group of the employees instead of another group. Originally, Becker made this assumptions referring to racial discrimination, but the model may be applied not only to racial determinant.

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Undoubtedly, such situation in the market can bring to lowering the wages of discriminated groups, though the productivity of all the groups will remain equal. Thus, discriminated employees will have lower utility. Correspondently, monetary profits of non-discriminatory companies will be higher than those of discriminatory companies.  In addition, it will affect economic equity, because the companies at the market will tend to segregate the groups of workers in long run period if the customers are ready to pay for the “taste”.

References

Robinson, Joan Violet. (2004) The Columbia Encyclopedia, Sixth Edition. NY: Columbia University Press.
Schwab, S. J. (1999). Employment Discrimination [Brochure]. Cornell University School of Law. Ithaca, NY.

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