Three Simple Models of Oligopsonistic Labor Markets

Abstract

This paper newly introduces three simple geometrical models of oligopsonistic labor markets. The first model, which is called the kinked labor supply curve model, is concerned with the situation in which oligopsonists act independently without any collusive agreement. This model suggests that some oligopsonistic labor markets are likely to exhibit a high degree of wage and employment stability. The second model, which is called the joint profit maximization model, is concerned with the situation in which all oligopsonists organize a body of complete collusion, or a cartel. This model shows that the oligopsonists in the cartel will lower the wage rate by collusively reducing their employment and, by doing so, maximize the total of their profits. The third model is concerned with the situation somewhere between the two above and is called the wage leadership model. This model implies that the wage-leading dominant firm will lower the wage rate by substantially reducing its own employment by itself in order to maximize its profit. We believe that the three models in this paper help us understand the basic workings of oligopsonistic labor markets and, therefore, we strongly suggest that the models be put in ordinary textbooks of economics.