Long-run Equilibrium under Pure Monopsony
This note extends the conventional short-run comparison of perfectly competitive and monopsony markets to show that the long-run monopsony equilibrium implies a greater divergence from the competitive results than is true in the short run. The conditions necessary to have a "pure" monopsony, with power in only the labor market, are developed and generate a constant marginal revenue product of labor equal to the competitive wage. This leads the monopsonist to cut wages and labor inputs further in the long run and also forms the upper bound on the bargaining range for a union negotiating with a pure monopsonist.
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Volume (Year): 23 (1990)
Issue (Month): 3 (August)
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