Duality in the analysis of monopsony in the labor market

Duality in microeconomic theory refers to the description of the same economic phenomenon by different sets of variables: quantities and prices. It relies on the price-taking behavior of economic agents. This paper takes the challenge of delivering a comprehensive analysis of monopsony in the labor market from a duality perspective. The standard monopsonist's short-run normalized profit maximization model is enriched by the introduction of the non-wage determinant of the labor supply which takes the role of the price of the newly introduced pseudo labor. The pseudo production and pseudo cost functions are identified as dual functions of the short-run normalized profit function of monopsonist for the given labor supply function. Duality as a way of thinking enables an elegant derivation of a version of Hotelling's lemma in the monopsony case. Finally, comparative statistics reveal interesting economic relations, important for the empirical investigation.