A Closer Look at Monopsonies

A monopsony is the idea that there is only a single buyer in a market. In other words, there is only a single employer who, thus, has control over wage and benefits of its workers by limiting the number of workers it hires. On the other hand, a competitive employer faces an infinite elasticity of labor supply so if they cut wages, they might lose their workforce. Therefore, monopsonies are able to exploit their workers much more than competitive employers. 

An example of a monopsony in real life is in professional sports. Specifically, let's look at professional baseball, the MLB. According to past research, players with less than six years of experience have lower salaries than players with the same productivity and more than six years of experience. So, players are not paid equally and it doesn't just depend on productivity or how well they play. Many players do not receive wages that are equal to the amount of revenue that they bring in. Additionally, agreements between teams have created a system in which the total payrolls of each team are limited and thus brings more monopsony power to the owners. 

Is there an advantage to having a monopsony? One is that there could be a producer surplus which could be used towards greater capital and research. With only one buyer, workers have lower wages and thus, increases the profit margin of the buyer. 

The obvious disadvantage of a monopsony is that it has the ability to exploit its workers. With only one employer, workers do not have much choice and may be forced to accept lower wages or lower benefits. 


Sources:
https://eh.net/encyclopedia/monopsony-in-american-labor-markets/
https://core.ac.uk/download/pdf/59207297.pdf
https://courses.lumenlearning.com/microeconomics/chapter/reading-monopoly-and-monopsony-a-comparison/
https://www.tutor2u.net/economics/reference/monopsony-power-in-markets

Picture:
https://1000logos.net/mlb-logo/

Comments

  1. AnonymousApril 11, 2019 at 8:42 AM

    Thank you for sharing this with us! Your post is really educational as monopsony is another face of monopoly. In Monopsony, employers gain the power to depress wages. In addition to what you mentioned in your post, the collusion could drive down wages as well if there are a few powerful firms. For example, a great example of monopsony power in the labor market is the collusion among tech firms in Silicon Valley. For big firms like Apple Inc. and Google Inc. could get away with paying lower wages to their employees by agreeing not to compete with each other. It is impossible for workers to boost their wages because all employers in the field weren't competing enough for the services of workers with similar skills.

    Sources: https://equitablegrowth.org/monopsony-market-power-labor-market/

    ReplyDelete
  2. AustinApril 11, 2019 at 9:21 AM

    Nice post. As we learned in class today, in the Baseball industry of the past decades had the ability to bound players to their team. This made player unions essential have no rights and no power to give Baseball players the changes that they demand. I think the existence of such models in the already monopsonistic baseball league caused the players to have an extremely hard time to make changes and have any saying in the whole affair. In a monopsonistic cooperation where exists is impossible, the cooperation could easily give lower wages to players without concerns.

    ReplyDelete
  3. AnonymousApril 12, 2019 at 8:36 AM

    This post was interesting, as I was thinking about how minimum wage plays into monopsonies. Because monopsonies are the sole employer, employers are basically only bound by the minimum wage. However, if the minimum wage is too high in a certain city or state, the monopsony does have the power to change its location to a different state, so even the government doesn't have complete control over the wages in a monopsony. I think that monopsonies hurt employees and the economy a lot, because it gives employers power to treat their employees badly and pay them less than if the market was competitive. In order to provide both monopolies and monopsonies, governments can break up large companies like they threatened to do with Microsoft.

    ReplyDelete

Post a Comment

Popular posts from this blog

The Cost of Inelastic Goods

Image
Many goods that are inelastic in terms of demand are ones that are essential or, in other words, necessary to one's self. There are several examples: basic foods, gasoline, or even medicine. I was interested in how producers can manipulate the prices of these goods and how the total revenue can change over time because those goods are inelastic. The first example I thought of was insulin. Considered inelastic because, without it, those who are diabetic might physically suffer, I looked at the price trends in the past couple of years. Just as I predicted, the price has been rising dramatically in the past decade or so as producers are taking advantage of the consumers' essential need for this good. There are about 7.4 million Americans that use insulin and many struggle to pay the costs of this increasingly expensive drug. So, while rising prices benefit insulin manufacturers, those same prices come at a serious cost for patients as the demand for insulin is inelastic. Other...
Read more

The Economics and Psychology of Gambling

Image
As gambling around the world continues to increase, governments are starting to see these often self-destructive habits as a way to get money from their residents. Gambling has been seen as immoral and manipulative on the part of casinos, as well as pitiful on the parts of the people that gamble all their money away. It is seen as immoral and a “lazy way” to make money that isn’t even assured to get you anything. So what keeps bringing people back to the card table or slot machine? There are many theories about why someone would continuously gamble any money that they make to the point of landing themselves in debt. In many cases, the gamiling becomes an addiction, though many professionals have reservations on calling it that, that gets increasingly hard to kick. It is irrational for someone to continuously lose money and keep going back only to lose more. Or is it? The utility that some get out of gambling may feel like spending the money is worth it. As far as recreational ...
Read more

The Hidden Monopolies of the World

 Monopolies are all around us in the world, and not all of them are  obvious on the surface level like Google and Facebook. For example, you might be searching for hotel rooms and browse multiple "competing" sites like Travelocity, Trivago, or Hotel.com. What you most likely do not know however, is that all three websites are actually all owned by the same company; Expedia group. This illusion of free choice is used to hide the fact that Expedia essentially hold a monopoly over the industry and all hotel bookings actually go through them. These fake competitors which are all owned by Expedia Group controls 75% of the US online travel agency industry, Similarly, apple fans and Microsoft fans stubbornly stick to their respective brands of computers; not knowing that the laptops all come from the same Chinese manufacturer. Throughout all types of industries such as the ones listed earlier and others such as smartphones, supermarkets, beer, and even sunglasses, hidden parent co...
Read more