What are a monopoly and a monopsony? Why do those concerned with consumer and labor regulations pay attention to them?

Monopoly and monopsony represent two extremes in the market structure. There is only one buyer in a monopsony and a single seller in the monopoly market. Some of the common characteristics for both markets include:

• Price setters- firms in both markets have the power to set and maintain the price and quantity levels of the products sold in the market.
• High barriers to entry- factors such as substantial initial capital outlay, patents, and copyrights limit the entry of new firms in the market.
• Both use the marginal concepts in decision making- a monopoly sets the quantity produced at the level where marginal cost is equivalent to marginal revenue earned. At the same time, a monopsony employs the amount of the factor where the marginal revenue and marginal factor costs correspond.
• Both aim at profit maximization.

Due to reduced competition, market power, and the profit maximization goals, monopoly and monopsony markets lead to market failure and inefficient resource allocation. Consumers in a monopoly are subjected to low quality and highly-priced commodities, reducing consumer surplus while laborers in a monopsony receive low wages and working conditions. This prompts the need for those concerned with consumer and labor regulations to pay attention to both types of markets.