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Monopsony Power in Markets
The document discusses the concept of monopsony power in various markets, providing examples of companies that have significant monopsony power in industries like book publishing, coffee/cocoa, and healthcare. It specifically examines Amazon's monopsony power in the book market, where it controls over 70% of online book sales in the UK, allowing it to negotiate lower prices from publishers and undercut other retailers. The effects of monopsony power are analyzed, such as how a monopsonist employer can pay wages below the fair value of workers' output and the potential impacts of minimum wage laws in countering monopsony power in labor markets.
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Monopsony Power in Markets
- 1. A2 Micro Monopsony Power Tutor2u,Summer 2013
- 2. Monopsony Power inMarkets
- 3. Effects of Monopsonyon Welfare Examples: Monopsony • 1: Food retailers • 2: Electricity generators • 3: Coffee / cocoa roasters • 4: Amazon / Apple • 5: National Health Service
- 4. Authors/Agents Wholesalers Retailers Consumers Publishers/Distributors Bookstores Chains Independent Bookstores Supermarkets Internet Retailers Book Clubs The BookMarket Supply Chain – monopsony power for major buyers Good to link monopsony power with vertical integration
- 5. Amazon – MarketPower Volume Value % % Chain bookshops* 29 36 Independent bookshops 4 5 Bargain bookshops 9 4 Supermarkets 13 10 Other shops 12 8 Book clubs 6 6 Internet-only retailers# 27 31 * Waterstone’s, WHSmith, Blackwell # Internet only – e.g. Amazon, Play.com Internet Only Book Sales in UK (2011) Market share Amazon 70% The Book Depository 4-5% Play.com 3-4% Others (including publishers’ direct) 22%
- 6. Amazon’s Monopsony Power Howdoes Amazon gain from monopsony power? • 1: Cheaper prices from publishers • 2: Charges a premium for sellers on Market Place • 3: Ability to under-cut other book retail channels
- 7. Amazon and Economiesof Scope Amazon launched its groceries range in July 2010. It now offers in excess of 150,000 products, from crisps to nappies, which are typically sold in bulk Do you know the difference between scale and scope economies?
- 8. The effect ofmonopsony on welfare What can producers do if faced with monopsony power? • 1: Form co-operatives • 2: Lobby competition authorities • 3: Build retail channels e.g. small bookshops going online
- 9. Monopsony Power inLabour Markets
- 10. Wage Labour (Employment) Monopsony Power inLabour Markets – Lower Wages? Monopsony Employer MC labour Labour Demand (MRPL) Labour supply Profit maximising employment level is where MRPL = MC labour This gives employment of E1 – the marginal revenue product is W1 But employer needs only pay an average weekly wage of W2 to hire these workers Monopsony employer using their buying wage to pay wages below the fair value of output from their employees An abuse of market power? A cause of relative poverty? W1 W2 E1
- 12. Monopsony Power inLabour Markets – Minimum Wages Wage Possible Effects of a Minimum Wage Labour (Employment) MC labour Labour Demand (MRPL) Labour supply Minimum wage is a pay floor Minimum hourly pay rate Must be set above usual free market wage Monopsonist must pay this wage Employment rises to E2 More people employed at a higher wage Other factors affecting wages are held constant in this analysis Min Wage E2 W2 E1
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