So you want to sell to a monopsony..

Most of us are familiar with the concept of a monopoly. A single vendor has controls an entire market. Buyers suffer because the vendor can raise prices as much as they’d like.

There is an inverse to this concept: A monopsony. It is where there is only one buyer in a market. The vendors suffer because there is only one buyer for their good.

Every market is on a continuum from monopoly at one extreme to monopsony at the other. In selling to discount retailers, for example, the market characteristics are more similar to a monopsony. You’re stuck with Wal-Mart and Target as the big boys. In the case of your local NBA franchise, it’s a monopoly.

The problem for new businesses is the customers on the monopsony end of the spectrum have all the power. It makes it very difficult to big a huge business. Instead, businesses should go after markets that have more monopoly characteristics where one or a few providers win.

Michael Girdley