Monopsony

10 Key excerpts on "Monopsony"

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  Fundamentals of Labor Economics

  • Thomas Hyclak, Geraint Johnes, Robert Thornton, , Thomas Hyclak, Thomas Hyclak, Geraint Johnes, Robert Thornton(Authors)
  • 2020(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  In this chapter we first look at the theory of wage and employment determination in monopsonistic situations. Next we identify where Monopsony labor markets exist. Are they common or rare? Do they arise in certain types of markets and, if so, where? We study in detail two markets where Monopsony is often thought to be common: the 1 Just as the word monopoly means “a single seller” (from the Greek words mono [meaning “one”] and polein [to sell]), the word Monopsony was formed to mean “a single buyer.” However, in classical Greek the word opsonein means to buy fish or meat. So a monopsonist (taken at its literal meaning) refers to a single buyer of fish or meat products. See Robert J. Thornton, “How Joan Robinson and B. L. Hallward Named Monopsony,” Journal of Economic Perspectives 8(2) (2004): 257–261. Copyright 2021 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 212 Chapter 9 Monopsony and Minimum Wages markets for teachers and for professional athletes. Economists have expressed a re- newed interest in monopsonistic labor markets in recent years, and we examine why this is the case. Modern theories of Monopsony draw heavily on the theory of job search (see Chapter 8) and are able to explain some findings on the labor market that can seem bizarre to people brought up on the theory of competitive labor markets. In particular, some recent findings on the economic effects of the minimum wage are comprehensible only when it is realized that labor markets can be monopsonistic.

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  Monopsony in Motion

  Imperfect Competition in Labor Markets

  • Alan Manning(Author)
  • 2013(Publication Date)
  • Princeton University Press

    (Publisher)

  However, it is unlikely that they would exercise this power in the long run because it would lead to costly problems of recruitment, turnover and morale’’ (pp. 213–14) ‘‘Improved communications, labour market information, and labour mobility make the isolated labour market syndrome, necessary for Monopsony, unlikely at least for large numbers of workers’’ (p. 224) Hoffman (1986) 7 354 ‘‘A monopsonist is a firm that faces an upward-sloping supply curve for labor of a given quality. A university hiring economics instructors is most definitely not a monopsonist, because the relevant labor market is national and thus the number of other demanders is quite large’’ (p. 49) McConnell and Brue (1986) 9 607 ‘‘Monopsony outcomes are not widespread in the US economy’’ (p. 150) Marshall, Briggs, and King (1984) 4 657 Fleisher and Kniesner (1984) 16 536 ‘‘Monopsony does not appear to be a widespread phenomenon in the United States, but rather specific to a few industries’’ (p. 219) Hunter and Mulvey (1981) 4 403 Fearn (1981) 8 272 ‘‘many modern American labor economists assume generally that labor markets are competitive. The presumption that labor markets are monopsonies, however, remains in the public consciousness, particularly in union circles and in the legislatures. The situation may represent a classic ‘cultural lag’’’ (p. 117) These statistics might be thought to be a little unfair as many of these textbooks interpret Monopsony literally as being a situation of a single employer of labor rather than the interpretation of an upward- sloping supply curve of labor that is used here.

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  Economics

  Principles & Policy

  • William Baumol, Alan Blinder, John Solow, , William Baumol, Alan Blinder, John Solow(Authors)
  • 2019(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 12 Monopoly 253 A market with only one buyer is called a Monopsony. A Monopsony is in many ways the mirror image of a monopoly. While a monopolist restricts sales in order to drive the price it receives up, a monopsonist restricts purchases in order to drive the price that it is paying down. In the case of monopoly, the product being sold can have no close substitutes; otherwise, the monopolist’s price increase will be self-defeating as buyers switch to substitutes. Similarly, for a market to be a true Monopsony, the product being bought must have little or no other use. Otherwise, when the Monopsony buyer tries to force its price down, the producers will simply sell it to other buyers for other uses. Finally, like a monopolist, a monopsonist requires a barrier to entry if their excess profits are going to persist. How does the monopsonist choose its purchases and purchase price in order to maxi- mize its profits. For concreteness, let’s consider the only processor of blueberries (into jam) in some county in Maine that is so isolated that it is prohibitively expensive for blueberry growers to ship their fruit to another processor. This case is illustrated in Figure 5. It shows that, unlike a firm in a competitive market for blueberries, which can buy as many or as few pounds of blueberries as it wants at the going price, the Monopsony firm faces an upward-sloping supply curve for blueberries. As a result, the firm’s buying decision affects the price of blueberries in the county. The blueberry processor pays the same price to all growers. If the processor decides to buy more berries, it must increase the price somewhat to coax out the additional supply.

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  The Global Limits of Competition Law

  • D. Daniel Sokol, Ioannis Lianos(Authors)
  • 2012(Publication Date)
  • Stanford Law Books

    (Publisher)

  Jeffrey L. Harrison

  There is a tendency among antitrust scholars, judges, and practitioners to focus on practices by single sellers or groups of sellers. Increasingly, however, the importance of possible anticompetitive actions by buyers has been recognized. This recognition is long overdue. Actions by buyers, or monopsonists,1 have many of the same negative economic impacts as those by sellers. In addition, whether it is in the form of competing buyers of the services of physicians or professional athletes, or of agricultural commodities, the use of Monopsony power has far greater impact on markets than most would expect. In this sense, a limit of antitrust is the inability of academics and judges to understand certain economic complexities that do not fit within tradition frameworks of analysis.

  The new level of consciousness about Monopsony is explained, in part, by the 2007 decision of the Supreme Court in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co .2 The Court noted “close theoretical connection between monopoly and Monopsony.”3 In fact, in many respects Monopsony is the mirror of monopoly. Monopsonists use buying power to lower prices while monopolists use seller (or market power) to raise them. In both instances, there is likely to be lower output and higher prices of the final output.4 In fact, it is tempting to take all of the antitrust analysis that is applied to sellers and apply it to buyers. For example, just as there is seller-side price fixing, boycotts, and mergers, buyers can engage in the same practices.

  Economic theory generally supports the idea of comparable treatment but is somewhat more complicated when one attempts to apply existing legal standards. The focus in this chapter is on some of the stickier issues that arise when antitrust is applied to Monopsony. In a real sense they represent limitations on antitrust as it exists because they require policy makers to examine issues with which they are unfamiliar and formulate new approaches to some of those issues. This analysis starts with a short review of Monopsony theory. The purpose of this review is to provide a context for the specific issues that are addressed in the following sections. The first complication concerns what is called the “all-or-none supply curve.” This amounts to an argument that in some circumstances, Monopsony may not be harmful. The discussion then explores questions left open by Weyerhaeuser,

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  The Economic Theory of Costs

  Foundations and New Directions

  • Matthew McCaffrey(Author)
  • 2017(Publication Date)
  • Taylor & Francis

    (Publisher)

  It is common to distinguish between “classic” and “new” Monopsony theory (Manning, 2008). Classic Monopsony is the typical textbook version. In short, one buyer faces many sellers, so that the quantity supplied to this “monopsonist” is an increasing function of price. This stands in contrast with the perfectly competitive case in which the supply schedule confronting the buyer is perfectly elastic (the corresponding supply curve being perfectly flat) at the market equilibrium price. The buyer is one among many such that any attempt on his part to lower the price would result in the hiring of all units by its competitors at the current price. In other words, the buyer is a “price-maker” in the first case and a “price-taker” in the second.

  Since the model typically deals with the market for a factor of production – usually labor factors facing the demand of a profit-maximizing employer – the consequences are as follows: the employer will hire or buy units of the factor until the monetary value of the marginal product of the factor equals its marginal cost. In perfect competition, this means that the employer hires up to the point where the marginal revenue product equals its price. Under less than perfectly competitive conditions, however, marginal cost is above the price for any quantity hired but the smallest, since the price rises for all units hired as the quantity of factors hired grows (except when dealing with the case of price discrimination). Therefore, the profit maximizing point will be reached with a lower amount of factors hired than would have occurred under perfect competition, and there will be a gap between the value of the marginal product and the price of the factor, the marginal revenue product being higher and the price being lower than they would be under perfect competition.

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  Labor Markets and Employment Relationships

  A Comprehensive Approach

  • Joyce Jacobsen, Gilbert Skillman(Authors)
  • 2008(Publication Date)
  • Wiley-Blackwell

    (Publisher)

  Excess demand or supply would not only persist in this scenario, but would constitute a point of equilibrium, in the sense that no rational gain-seeking market actor is both willing and able to alter this condition. The assumptions of wage-taking behavior and flexible wage adjustment are thus both now seen to rely in part on the postulate that the total gains from labor exchange are independent of the wage rate. The economic significance of this assumption, and the possible consequences of relaxing it, are considered later in the chapter. 118 LABOR SUPPLY AND DEMAND Monopsony IN THE LABOR MARKET Pure Monopsony Strictly speaking, Monopsony is defined as a market setting in which there is only one buyer for a particular type or set of labor services offered by perfectly com-petitive sellers. More generally, it refers to situations of wage-setting market power resulting from limited competition among buyers. In all such cases, the expression of this power has potential implications for the distribution of avail-able surplus, as well as for the efficiency of labor market outcomes, and thus the total magnitude of that surplus available for distribution. First consider the case of pure Monopsony power, in which there is only one buyer in an otherwise competitive labor market. As a point of departure, consider the situation depicted in figure 4.1. It shows a market supply curve for labor, S L , and the aggregate value marginal product of labor (VMP L ) curve for all firms oper-ating in the market. As discussed in the previous chapter, for given output prices this VMP L function corresponds to the market demand curve if labor buyers are wage-takers, and the intersection of S L and VMP L thus determines the equilibrium wage rate W c and quantity exchanged L c in a perfectly competitive labor market. The magnitude and distribution of welfare gains in this equilibrium are indicated by the areas marked A (representing consumer surplus) and B (representing pro-ducer surplus).

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  An Introduction to Economics for Students of Agriculture

  • Berkeley Hill(Author)
  • 2013(Publication Date)
  • Pergamon

    (Publisher)

  Where supply emanates from a few large firms, such as with farm fertilisers, an oligopoly exists. Often supply comes from a mixture of big firms and small firms, and the degree of control over price will then be related to the size of the firm. On the demand side of the market a complete Monopsony (note spell-ing) occurs when there is only one buyer. The Milk Marketing Board for England and Wales is virtually the only buyer of milk from farms in those countries and thus would have considerable power in dictating the price received by farms even in the absence of government price policy. Similarly an oligopsony is where only a few buyers exist — an example would be where there are only a few employers of a specialist skill in a locality. The imperfections encountered in markets for farm products are not typical of those found in most non-agricultural sectors of the economy. Many non-agricultural goods in developed countries are produced by large firms which are in monopoly positions or are part of an oligopoly, and the danger is that these firms will exploit their power over the market to charge the numerous but individually-defenceless consumers more than they would have to pay under perfect competition. Farming is often faced by the opposite phenomenon; there are many producers of cereals, meat and milk, each of whom are insignificant when compared with total industrial output, but often farmers are dealing with large buyers, such as the marketing boards or large companies, who could at least in theory dictate the prices they offer to farmers. In practice the Monopsony is rarely complete, and where it is (e.g. the Hop Marketing Board) farmers usually have an important say in its administration and so the question of exploitation of farmers does not arise. From the general description of markets given above we turn to examine

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  Decentralization and Market Structure Theories

  • (Author)
  • 2014(Publication Date)
  • Learning Press

    (Publisher)

  ____________________ WORLD TECHNOLOGIES ____________________ Chapter- 7 Monopoly In economics, a monopoly (from Greek monos / μονος (alone or single) + polein / πωλειν (to sell)) exists when a specific individual or an enterprise is the only supplier of a particular kind of product or service. (This is in contrast to a Monopsony which relates to a single entity's control over a market to purchase a good or service, and contrasted with oligopoly where a few entities exert considerable influence over an industry) Monopolies are thus characterised by a lack of economic competition to produce the good or service and a lack of viable substitute goods. The verb monopolise refers to the process by which a firm gains persistently greater market share than what is expected under perfect competition. A monopoly must be distinguished from Monopsony, in which there is only one buyer of a product or service ; a monopoly may also have Monopsony control of a sector of a market. Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations where one or a few of the entities have market power and therefore must interact with their customers (monopoly), suppliers (Monopsony) and the other firms (oligopoly) in a game theoretic manner - meaning that expectations about their behavior affects other players' choice of strategy and vice versa. This is to be contrasted with the model of perfect competition where firms are price takers and do not have market power. When not legally coerced to do otherwise, monopolies typically produce fewer goods and sell them at higher prices than under perfect competition to maximize their profit at the expense of consumer satisfaction. Sometimes governments legally decide that a given company is a monopoly that doesn't serve the best interests of the market and/or consumers.

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  Microeconomics

  • David Besanko, Ronald Braeutigam(Authors)
  • 2020(Publication Date)
  • Wiley

    (Publisher)

  Thus, each baseball team was a monopsonist in the baseball players market. As in this case, a monopsonist could be a firm that constitutes the only poten- tial buyer of an input. Or a monopsonist can be an individual or organization that is the only buyer of a finished product. For example, the U.S. government is the monop- sonist in the market for U.S. military uniforms. In this section, we study a firm that is a monopsonist in the market for one of its inputs. THE MONOPSONIST’S PROFIT- MAXIMIZATION CONDITION Let’s imagine a firm whose production function depends on a single input L. The firm’s total output is Q = f(L). You might, for example, imagine that L is the quantity of labor a coal mine employs. If the mine size is fixed, the amount Q of coal produced per month depends only on the amount L of labor hired. Imagine that this firm is a perfect competitor in the market for coal (e.g., it sells its coal in a national or global market) and thus takes the market price P as given. The coal company’s total revenue is thus Pf(L). The marginal revenue product of labor—denoted by MRP L —is the additional revenue that the firm gets when it employs an additional unit of labor. Since the firm is a price taker in its output market, marginal revenue product is the market price times the marginal product of labor: MRP L = P × MP L = P(ΔQ/ΔL). Now suppose that our coal mine is the only employer of labor in its region. Hence, it acts as a monopsonist in the labor market. The supply of labor in the coal company’s region of operation is described by the labor supply curve w(L) shown in Figure 11.18, telling us the quantity of labor that will be supplied at any wage. This curve can also be interpreted in inverse form: It tells us the wage that is necessary to induce a given amount of labor to be offered in the market. Since the labor supply curve is upward sloping, the monopsonist knows that it must pay a higher wage rate when it wants to hire more labor.

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  The Evolution of Economic Thought

  • Stanley Brue, R. Grant, Stanley Brue, Randy Grant(Authors)
  • 2012(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  Chapter 17 T HE N EOCLASSICAL S CHOOL — T HE D EPARTURE FROM P URE C OMPETITION 357 Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Economists have identified Monopsony power in several real-world labor markets. For example, studies have shown Monopsony outcomes in isolated labor markets such as those for some public school teachers, professional athletes (before free agency), nurses, newspaper employees, and so forth. But in most labor markets workers have alternative employers for whom they could work, particularly when these workers are occupationally and geographically mobile. In addition, strong labor unions have emerged to counteract potential Monopsony power in several labor markets. Criticisms Chamberlin offered a criticism of Robinson ’ s analysis of exploitation. He did not cover distribution theory in the first edition of his book, but did so in subsequent editions. His retort to Robinson ’ s exploitation theory was that all factors, not merely labor, receive less than the value of their marginal products under condi-tions of monopolistic competition. The Pigou-Robinson definition of exploitation applies only to pure competition in the sale of the product, because it is impossible under other market conditions for all factors to get the value of their marginal pro-ducts (recall the “ adding-up ” problem). According to the Pigou-Robinson view, all factors are exploited, and employers could avoid the charge of “ exploitation ” only by going into bankruptcy.

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