Monopsony - Public Administration and Product Markets

Public Administration and Product Markets

The same or similar empirical difficulties dog attempts to identify significant monopsony in non-labour markets, and specifically in markets for intermediate goods bought as inputs by very large firms. Among the most likely US candidates, one finds in the literature:

  • trade in technological knowledge: Rodriguez (1975)
  • tomatoes for tomato processing: Just and Chern (1980)
  • beef for the beef packing industry: Schroeter (1988)
  • western coal for electric utilities: Atkinson and Kerkvliet (1989)
  • pulpwood and sawlogs: Murray (1995)
  • sophisticated weaponry (i.e. jet fighters, tanks, artillery, etc.)

A related issue is the role of monopsony power from the point of view of anti-trust policy affecting vertical integrations. It has been argued that vertical integration by a monopsony – whereby the production of the previously bought input becomes an in-house operation – may reduce or eliminate the inefficiencies due to monopsonistic restriction of purchases.

In Australia, the Pharmaceutical Industry can be viewed as a kind of monopsony, as the Commonwealth government is the principal buyer of products through the Pharmaceutical Benefits Scheme (PBS)

In the US, journalists, including Harper's and the PBS program Frontline, have made the case that Wal-Mart is a monopsonist, dictating terms to suppliers, whilst at the same time a monopolist dictating terms to consumers - at least in certain market segments.

It has been argued that Apple has in some ways become a monopsonist in that it can dictate terms to suppliers of electronic components.

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