Monopsony Power

6 Key excerpts on "Monopsony Power"

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  eBook - PDF

  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)

  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. But, mentions of oligopsony are even fewer than mentions of monopsony, and the INTRODUCTION TABLE 1.1 (continued) Author Pages on Monopsony Total Pages Selected Quotation Bloom and Northrup (1981) 4 836 Kreps, Martin, Perlman, and Somers (1980) 9 477 ‘‘instances of monopsony are not that frequent as to make the chances that administered wages will not reduce employment’’ (p. 110) Addison and Siebert (1979) 8 500 ‘‘we should qualify our discussion of monopsony by observing that imperfect worker information as to alternative wages will confer on each firm a margin of Monopsony Power. Thus, each firm will possess a degree of dynamic Monopsony Power arising from the imperfect information of its employees and can therefore administer wages’’ (p. 169) Freeman (1979) 0 196 Bellante and Jackson (1979) 4 351 ‘‘many economists argue that Monopsony Power by firms is likely to be greatly exaggerated given the occupational, industrial and geographical mobility that characterizes American labor markets’’ (p. 196) Cartter and Marshall (1972) 11 570 Lester (1964) 2 608 ‘‘the manipulation of wages by the purchase of labor according to monopsonistic calculations seems to be misguided academic speculation’’ (p. 281) Phelps Brown (1962) 1 274 ‘‘the rate needed to attract labour in the first place is higher than that needed to retain it once it has settled in. Much of a firm’s labour force is likely, for this reason, to be captive; the firm is a monopsonist in the short-run’ (p. 137) 9 general impression given by most textbooks is that employers have negligible market power over their workers or that this is, at best, a trivial side issue.

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  The Economic Theory of Costs

  Foundations and New Directions

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

    (Publisher)

  Classic monopsony also refers to oligopsony, where the market structure is such that a few buyers compete. The theory becomes more complicated because one must take into account the strategic interactions between buyers, since the supply schedules facing each buyer are affected by their competitor’s decisions. Nevertheless, the heart of the matter remains that the buyers face less-than-perfectly-elastic supply schedules. In the same way that “monopoly” now often refers to any situation in which a seller has some market power (that is, faces a less-than-perfectly-elastic demand schedule), “monopsony” nowadays often refers to any situation in which a buyer faces a less-than-perfectly-elastic-supply schedule (Manning, 2008), including monopsony in the narrow sense, as well as oligopsony or indeed any other possible configuration within the framework of imperfect (Robinson, 1933) or monopolistic competition (Chamberlin, 1933).

  The “new monopsony” literature still concerns imperfect competition, forward sloping supply curves, etc. The main difference with the older literature is, as Manning (2008) puts it, that, “modern theories of monopsony do not generally argue that employer market power over their workers derives from there being a small number of employers. They tend to emphasize the role of frictions in the labour market.” It is not surprising then that these authors find more room for monopsonistic distortions in the economy than their predecessors. For as long as workers do not immediately quit a firm en masse whenever the employer “cuts wages by one cent” (Manning, 2008), which we can confidently assume never happens, employers have some market power.

  Manning (2003, p. 3) merely follows this thread of thought consistently when he asserts that the simple monopsony model is a better first approximation of the situation for any firm than the perfectly competitive model. However, he is a leading author in developing a more sophisticated approach drawing on the “search costs” literature in particular (Manning, 2006), pursuing Burdett and Mortensen’s (1998) initial line of thought. In a nutshell, the idea is that looking for a job is a costly endeavor, so that workers do not automatically find it beneficial to switch jobs when a better-paying alternative is available. This leaves room for monopsonistic behavior on the part of employers. As Borjas (2013, p. 192) summarizes it: “In effect, mobility costs help generate an upward-sloping supply curve for a firm.”

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  The American Political Economy

  Politics, Markets, and Power

  • Jacob S. Hacker, Alexander Hertel-Fernandez, Paul Pierson, Kathleen Thelen(Authors)
  • 2021(Publication Date)
  • Cambridge University Press

    (Publisher)

  Monopsony adds yet another obstacle: high turnover of the low-rent workers. When employers choose a low-wage, high-turnover pay policy, fewer workers have an interest in improving conditions in their current job, because there are many jobs that are better and expected duration of the current job is low. Further, there is little time for a collective identity to form. Coupled with even moderate employer resistance to unionization, it becomes well-nigh impossible to build an organizing effort. But this leaves the high-rent workers alone to contest employers, and these are the workers for whom this job is particularly scarce and valuable. These obstacles are driven home by Reich and Bearman’s 2018 work on Walmart organizing: they find there are two groups of Walmart workers, one which has no intention of staying for an extended period, 318 Suresh Naidu and another for whom the Walmart job is the best option they, or anybody they know, could hope to have; neither of these groups of workers have any particular interest in unionizing Walmart. The Limits of City Limits Monopsony in any given labor market wouldn’t be a problem if workers were readily mobile across markets. The view that Americans are a mobile population of job shoppers remains fixed in the national imagination, and makes some skeptical of the importance of labor market power. In eco- nomics, spatial equilibrium implies that workers are indifferent across locations in the long run (Roback 1982; Rosen 1974), and even single- employer labor markets cannot pay workers below marginal productivity for very long. The political economy version of this argument, the Tiebout model, puts hard constraints on what subnational governments can do: migration of people and resources eventually discipline local governments into a narrower range of policy options than most reformers would like. But evidence has been building that spatial mobility isn’t as fluid as we thought.

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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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  eBook - ePub

  Principles of Agricultural Economics

  • Andrew Barkley, Paul W. Barkley(Authors)
  • 2016(Publication Date)
  • Routledge

    (Publisher)

  13Market power

  Plate 13.1 Market power

  Synopsis

  This chapter explores the causes and consequences of market power, the ability to charge prices higher than the competitive equilibrium price. Monopoly, monopolistic competition, oligopoly, and cartels are market structures characterized by market power. Examples from agriculture include the international wheat trade, major beef packers, and fruit and vegetable marketing orders. This chapter also explains how buyers (consumers) interact with firms characterized by different market structures. Game theory is used to demonstrate how economic models can be made more useful by incorporating the actions and reactions of other firms into the model.

  13.1 Market power

  Competitive markets depend on free, voluntary trade between numerous buyers and numerous sellers to ensure efficiency in resource use. This chapter discusses noncompetitive Market Structures in which individual firms can influence the price charged for their products. This occurs when there are so few firms in the industry that each one can affect product prices by altering the quantity of goods they place on the market. When there are only a few firms, the rivalry among them does not necessarily result in competitive outcomes similar to those discussed in Chapter 12 . Discussion here turns to situations where free markets may not, and most likely will not, yield efficient outcomes. When efficiency is absent, consumers pay more for products than manufacturers spend to make them. Using terms studied in earlier chapters, buyers pay more than a product’s cost of production in order to obtain a good. In addition, potential entrants may find it difficult or impossible to enter an industry. The discussion begins with an explanation of Market Power .

  Market power is the ability of a firm to set the price of a good higher than the cost of production. A firm with market power can influence the price of its product, or the competitive market price.

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