Alyssa Mazer
Department of Politics, University of California, Santa Cruz
Monopsony is a theoretical description of imperfect capitalist markets, articulated by Joan Robinson in her book The Economics of Imperfect Competition (1933). Very simply, monopsony is the monopolistic control of price by a buyer, who is able to dictate their desired price because they face little to no competition. This theory established Robinson’s legacy as an economist, and has more recently been used to consider issues of labor exploitation around the world (see Manning 2003; Ashenfelter et al. 2010; Autor et al. 2017; Kumar 2020).
The turn to the twentieth century saw the thriving success of economist Alfred Marshall, the dominant figure of the discipline at Cambridge University by the time Robinson and her husband arrived on the campus in 1929. In the words of Zachary Carter, Marshall’s economic theories emphasized “beautiful symmetries” in which “the market would respond to consumers and the wealth of society would increase” (2021). Following Marshall, mainstream economics assumed that, with the exception of rare monopolies, markets were naturally—and perfectly—competitive.
Robinson argued that the competition-monopoly paradigm was an unrealistic description of real markets. Instead, she theorized “imperfect competition” to be the norm, in which any genuinely perfect competition represented deviation. Through Robinson’s understanding, it was clear that not only monopolistic producers, but also the control of a few consumers could fundamentally alter the conditions for competitive market exchange. As Carter notes in his book on the work of John Maynard Keynes, this important theory was especially meaningful when applied to the labor market, which allowed Robinson to demonstrate that capitalists “were chronically underpaying their staff.” It was through monopsony— imperfect competition controlled by a few select buyers—that capitalists were able to exploit their workers.
The importance of this application was celebrated by Robinson herself; the second edition of Imperfect Competition includes a preface in which Robinson explains that “the main point,” for her, was that she “succeeded in proving within the framework of the orthodox theory, that it is not true that wages are normally equal to the value of the marginal product of labour” (1969, xii).
While the concept has taken a backseat to economic debates about neoliberalism in the 88 years since Robinson’s book was first published, Carter asserts that monopsony is once more a crucial consideration for economists. As the discipline becomes “increasingly comfortable with the idea that large government budget deficits are … a normal part of a high-functioning economy,” they must also recognize that government regulation is similarly necessary (2021).
The American government apparently agreed with Carter a handful of years before his prescription. As provided to the Obama administration in 2016, a Council of Economic Advisers Issue Brief describes a growing problem in the labor market as: “a general reduction in competition among firms, shifting the balance of bargaining power towards employers.” They go on to identify sources of this monopsony, including obvious factors, such as employer collusion and non-compete agreements, as well as more complicated social and personal conditions, such as “frictions” in the labor market, employer-sponsored health insurance, and barriers to worker mobility.
Although the Brief includes several pages of more detailed policy considerations, they summarize their recommendation thusly: “Promoting competition must therefore include, but not be limited to, aggressive anti-trust enforcement. Additional important policies include those that facilitate job search, increase worker options, and directly counter the wage-setting power of employers.” All of these things can be enabled in various ways, including expanding protections for workers via reforms in legislation regarding equal pay, sick leave, licensing, and overtime, among other issues (2016).
Whether such reforms, when put in practice, actually benefit the worker is still contingent upon a multiplicity of other factors, each context-specific for the worker in question; thus, it’s obvious that the mitigation of monopsony is not a cut and dry process. However, monopsony appears to be a growing concern in the twenty-first century, suggesting that regulation purposefully designed to curtail monopsony is not only important for workers, but also for the overall longevity of capitalism.
BIBLIOGRAPHY
Ashenfelter, Orley C., Henry Faber, and Michael R. Ransom. “Labor Market Monopsony.” Journal of Labor Economics 28, no. 2 (2010): 203-10.
Autor, David, David Dorn, Lawrence F. Katz, Christina Patterson, and John Van Reenen. “Concentrating on the Fall of the Labor Share.” American Economic Review 107, no. 5 (2017): 180-5.
Carter, Zachary. “The End of Scarcity.” In The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. New York: Random House, 2020.
____________. “The Woman Who Shattered the Myth of the Free Market.” New York Times (2021).
Council of Economic Advisers Issue Brief. “Labor Market Monopsony: Trends, Consequences, and Policy Responses.” October 2016.
Kumar, Ashok. Monopsony Capitalism: Power and Production in the Twilight of the Sweatshop Age. Cambridge University Press, 2020.
Manning, Alan. Monopsony in Motion: Imperfect Competition in Labor Markets. Princeton University Press, 2003.
Robinson, Joan. The Economics of Imperfect Competition, 2nd ed. McMillan St. Martin’s Press, 1969.