Using Oligopsony Theory And Monopsonistic Competition

1047 WordsJan 27, 20155 Pages
In traditional sense, using “monopsony” to describe employer in a labour market is obviously unrealistic due to the existence of competition between employers. In contrast, it is more appropriate to model the labour market as under “oligopsony” and “monopsonistic competition” situation. Bashkar, Manning and To (2002, p 156) define Oligopsony in labour market as: “Oligopsony describe a situation where employer market power persists despite competition with other employers--the number of employers does not need to be small.” For monopsonistic competition, the term describes the condition which oligopsony has free entry or exit and all employer profits are zero. These terms are the most precise descriptions for the labour market that has coexistence of competition between employers and their degree market power. In this article, we will discuss on two issues with the application of oligopsony theory and monopsonistic competition: why firms might pay for “general” training of workers and why minimum wages could increase employment. We will also conclude the two sections by outlining a number of circumstances that we should expect to observe these theoretical predictions in the real world if possible. Training in Non-competitive Labour Market Academic economists have always been interested in general training of employees. For instance, Pigou (1912) argues that firms do not have the incentive to provide general training to employees. Workers can quit and work for other
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