Author's Note: Some 30 years ago, as an undergraduate studying
Economics, I took a course in Industrial Organization and Public Policy.
I have been mulling some of the ideas I first encountered in that
course ever since. The following in the product of just such mulling.
Many Americans are at least passing familiar with the 19th-century rise of corporate monopoly power in this country to set prices when selling and the subsequent development of the anti-trust regulations and legislation that came about to limit the power of monopolies. Far fewer Americans, however, know about the flip side of monopoly: monopsony. Put bluntly, a monopolist controls the prices of goods and services it sells. By contrast, a monopsonist controls the prices of goods and services it buys.
Many Americans are at least passing familiar with the 19th-century rise of corporate monopoly power in this country to set prices when selling and the subsequent development of the anti-trust regulations and legislation that came about to limit the power of monopolies. Far fewer Americans, however, know about the flip side of monopoly: monopsony. Put bluntly, a monopolist controls the prices of goods and services it sells. By contrast, a monopsonist controls the prices of goods and services it buys.
Just as it is in the interest of a well-run capitalist
economy to prevent the formation of monopolies, so too it should be the policy
of those same economies to prevent the creation of monopsonies. Too much power
to set prices when purchasing goods and services will produce the same
destabilizing influence as too much power to set prices when selling those same
goods and services.
WalMart may be starting to take on the least attractive
qualities of both monopolist AND monopsonist. As the sole brick and mortar retailer
for consumer staples in many communities across the country and increasingly
the globe, WalMart’s ability to set prices is so common sense as to hardly require
mentioning. But in many of those same communities, WalMart functions as a
monopsonist purchaser . . . of labor. In many communities, WalMart is the only
employer of note. Workers either work at WalMart or they don’t work.
If one thinks of a labor union as a voluntary monopoly on
labor, meaning the union exerts solitary pricing power for labor for all its
members in the various economic contexts in which it operates, it seems clear
why labor unions would be desirable from a public policy perspective. Unions’
monopoly power as a seller of labor balances the might of WalMart and other
giant monopsonist buyers of labor. I have left for another discussion
consideration of WalMart’s monopsonist power as a buyer of products. Much
anecdotal testimony exists as to how WalMart can threaten the existence of
suppliers who fail to satisfy its pricing targets. Again, this anecdotal
testimony suggests, if it does not prove definitively, that monopsonist power,
whether to purchase labor or products, destabilizes markets. Policy makers
should act strongly to curtail monopsony power. Failing that, policy makers
should augment unions’ powers to organize and bargain collectively, if only to
provide a necessary stabilizing balance to monopsony power.
