What defines a monopsony?

A monopsony is defined by the presence of a single buyer in a market for certain supplies or services. This situation creates a unique dynamic where the single buyer has significant power over the sellers, potentially influencing prices and the availability of goods or services. The monopsonist can exert pressure on suppliers, often leading to lower prices than would be expected in a competitive marketplace, where multiple buyers are present.

In this case, the focus is on the buying side of the market, contrasting with a monopoly, which involves a single seller that dominates the market. The other options revolve around conditions that define different market structures, such as perfect competition or oligopoly, but they do not accurately capture the essence of a monopsony. Recognizing the characteristics of a monopsony is crucial for understanding market dynamics, especially in sectors where a significant single buyer can shape supply chain decisions and pricing strategies.