Monopsony. Monopoly power of trade unions in the labor market
Perfect competition in the labor market is the exception rather than the rule. For most labor markets t Imperfect competition is typical. Its extreme case is monopsony. This situation often occurs in small towns, where the city's economy is almost entirely dependent on one large company providing employment to the bulk of the population. If alternative types there is little labor (or they cannot be compared in terms of pay with work in a given company), then conditions close to pure monopsony arise. IN in this case the company acts as the main (and in fact the only) buyer for local market labor, and therefore has the ability to influence the level wages. This is achieved by reducing the number of workers hired. As a result of increased competition between employees, their wages fall below the equilibrium level. Let's illustrate this with a graph (Fig. 8-6).
In the case of perfect competition, equilibrium is established at point C - the point of intersection of the labor supply and demand curves. Wage w c would be received by L from workers. Since the monopsonist pays an equal price for each unit of labor, the supply curve is the average cost curve. Hiring more workers would mean raising wages above average, so the marginal cost curve MRC L lies above the supply curve. Its intersection with the curve of the marginal product of labor in monetary terms will determine the size of employment. Under monopsony conditions, MRP L = MRC L. This means that by reducing the number of workers from Lc to Lm, the monopsony will lower wages from wc to wm.
Thus, monopsony power causes a decrease in both the scale of employment and the level of wages and at the same time increases the profit of the monopsony by an amount equal to the area AHMw m.
Rice. 8
An example of monopsony is professional sports. The National Football and Baseball Leagues and the National Basketball Association in the United States are often cited as typical examples of monopsony.
8.1.6 The role of trade unions in the labor market
Trade unions play an important role in the labor market.Trade union is an association of workers that has the right to negotiate with the entrepreneur on behalf and on behalf of its members. The goal of the union is to maximize the wages of its members, improve their working conditions and receive additional payments and benefits. Let us consider the activities of trade unions in conditions of both perfect and imperfect competition.
In a competitive labor market, unions operate in two ways. They seek either to increase the demand for labor or to limit the supply of labor.
Increasing the demand for labor is achieved primarily by increasing the demand for the product (advertising, use political lobby etc.). Increased demand for labor is also facilitated by increased efficiency and quality of labor. This is ensured, in particular, by the work of quality control circles, where employees (often together with the administration) look for ways to increase labor productivity, best use machines and equipment, saving raw materials and improving product quality.
An increase in the wages of union members can, however, be achieved in another way: by limiting the supply of labor. Restriction of labor supply may be the result of a trade union's efforts to include a given specialty in the list of licensed professions. The practice of licensing is widespread in developed countries. In the USA, for example, licensing currently covers about 600 types of activities.
Limiting the supply of labor is also achieved by reducing working week, prohibition or reduction in the amount of overtime work, reduction retirement age, restrictions on child and female labor, curbing the immigration of foreign workers. Restrictions in labor supply may also contribute to domestic politics trade union (especially successful in cases where the union controls the situation in the industry and is not afraid of competition from workers who are not members of the union). A trade union, for example, can limit the admission of members (either directly - administratively, or indirectly - through high entry fees). In this case, there must be an agreement with the company on hiring only union members.
8.1.7 Minimum wage
One of the activities of the trade union is the fight for the expansion of state rationing and labor regulation. Important integral part such rationing is legislation on minimum wages work fee. Its purpose is to set a minimum wage above the equilibrium level. Average level At the same time, wages increase, but the scale of hiring workers also decreases.
Let's illustrate this with an example. Without fixing the minimum wage, the equilibrium would be established at w c. At such a salary, L c workers would be employed (Fig. 8-7). Fixing wages at a level exceeding the equilibrium level (w min > w c) will not lead to an increase in the number of employees to La (as workers would like), but to a reduction to L min, since entrepreneurs will hire fewer workers than at the equilibrium level .
Rice. 8
The minimum wage at the federal level in the United States is set at 40-50% of the average wage. The first minimum was recorded in 1938, when the Fair Employment Act was passed. Currently it is 90% distributed employees. In 1992, the minimum wage was raised from $3.35 to $4.55 per hour.
The minimum wage law primarily affects the situation of unskilled workers. Among them, a significant proportion are young workers and teenagers, who react more sensitively to the establishment of a minimum wage than the adult population. According to neoclassical theory, minimum wage laws are far from the last reason that unemployment among young people (16-19 years old) is 3 times higher than among middle-aged people (25-54 years old).
A natural question arises: why, despite the threat of increased unemployment, do trade unions support demands for raising the minimum wage? The fact is that Negative consequences affect primarily the unskilled labor market and the situation of those who are unemployed. In general, employed workers (and especially the most skilled) benefit from an increase in the minimum wage. An increase in the minimum wage is usually accompanied by a revision of the entire system of wage rates towards its increase.
8.1.8 Economic rent
More skilled workers can receive a stable surplus income - economic rent, payment for a rare resource - their qualifications or abilities. Just as advanced firms receive producer surplus, the most productive workers receive economical surplus. ical rent.
Rice. 8 -8. Economic rent: general case
Let's consider the sectoral labor market. The labor supply curve has a positive slope. The desire to attract additional workers to the industry is associated with increasing opportunity costs. The labor demand curve, as a rule, has a negative slope (Fig. 4-8.). In equilibrium, wages will reach the level of W E. The most productive workers were willing to work, receiving a salary equal to W O , but in reality they receive W E .
The difference between the minimum (reserved) price of labor and market price amounts to economic rent. For all workers, it is equal to the area of the triangle W O E W E. In conditions of perfect competition, the presence of economic rent is an incentive for the influx of new workers into the industry. Therefore, in a competitive industry, the long-run supply curve becomes perfectly elastic and economic rent disappears. However, in cases where new workers do not have the skills of old ones, economic rents can be maintained long time. This is typical for industries that attract unique human resources. Pop stars, famous film actors, famous athletes receive very high fees. Their abilities are unique, and therefore the supply of such workers is very limited (there is only one A. Schwarzenegger, only one A. Pugacheva, etc.). It is completely inelastic. As a result, an increase in demand is expressed in an increase in the price of labor and an increase in wages. Let's look at Fig. 4-9. The initial demand for labor is denoted by the curve D 1, and the supply of labor is S. Under conditions of inelastic supply, the price of labor depends entirely on demand. The growth of the artist's popularity means a sharp shift in the demand curve from position D 1 to position D 2. Thus, the fee that the artist receives increases from W 1 to W 2. The area of the quadrilateral W 1 E 1 E 2 W 2 represents economic rent.
This is a payment for a resource whose supply is strictly limited. It represents the difference between the actual fee for the services of a specific resource and the minimum price that must be paid to induce the owner of this resource to sell it.
Rice. 8 -9. Economic rent in conditions where supply is strictly limited
Monopsony (Monopsony) is a situation where there is only one buyer and many sellers in the market.
If a monopoly is a certain phenomenon of market price control by a monopolist firm, when there is only one seller, then in the case of a monopsony, the power over the price belongs to a single buyer.
Special merits in the study of this market belong to the English economist D. Robinson. It is generally accepted that the concept of “monopsony” was introduced into scientific circulation by D. Robinson, however, in her work “The Economic Theory of Imperfect Competition” she refers to B.L. Halvard, who suggested this term to her.
Before analyzing price setting under monopsony conditions, it is necessary to compare markets of perfect and imperfect competition “through the eyes of the consumer.” In a perfectly competitive market, there are many sellers and as many buyers. Just as an individual seller is unable to influence the price under these conditions, so an individual buyer is not able to change the price of the goods he purchases. Under perfect competition, the demand line for a seller's goods is perfectly elastic. In the same way, the buyer's supply line under perfect competition is characterized by absolute elasticity. In other words, if a buyer offers less money for an item than the established market price, then he will not buy anything. Having offered more money, he will purchase as many goods as he needs.
It is necessary to compare the supply and demand curves under perfect competition on both the buyer and seller sides.
In the graph (Fig. 1a), the demand curve for the manufacturer’s (seller’s) goods is horizontal, and the supply curve corresponds to an ascending marginal cost curve \mathrm(MC) .
The second graph (Fig. 1b) is a mirror image of the graph shown in Fig. 1a. This means that under perfect competition there are a lot of buyers, and each of them is unable to influence the supply curve \mathrm S with their purchases, i.e. they are also “price takers.” Therefore, the horizontal appearance of the supply curve on the graph is a sign of perfect competition among buyers.
The constancy of the price under perfect competition for the consumer means that he does not influence it in any way, and all the conditions of market equilibrium are met: \mathrm P\;=\;\mathrm(AC)\;=\;\mathrm(MC). The price \mathrm P paid by the buyer completely coincides with the marginal cost of purchasing the product. What does this mean?
Marginal acquisition cost is the additional cost to a consumer when he purchases an additional unit of a good. The consumer pays for the goods he purchases at a certain price. The price is his costs as a buyer. In the case where the price is constant for each additional unit of the product purchased, marginal cost purchases of this product will also be permanent. This is evidenced by the horizontal supply line.
Thus, if \mathrm P\;=\;\mathrm(AC) , then the supply line \mathrm S is also the line of average costs \mathrm(AC) , and also coincides with the buyer’s marginal acquisition cost line \mathrm(MC). Under perfect competition, on the buyer's side, the supply line \mathrm S is also the marginal cost line \mathrm(MC) and the average cost line \mathrm(AC) .
The main condition for producer equilibrium is the equality \mathrm(MC)\;=\;\mathrm(MR) . Accordingly, the consumer must adhere to the same behavior in the market, i.e. compare its marginal cost and marginal revenue if it wants to achieve equilibrium.
Thus, the consumer's marginal cost is his additional cost of purchasing an additional unit of the good. If the price of the purchased product is constant, then it is equal to the marginal cost of the consumer. But what is the consumer's marginal revenue \mathrm(MR)? If he buys a product, then, as is known, he is guided by his marginal utility \mathrm(MU) . An increase in income for the buyer is an increase in utility. Consequently, the demand curve \mathrm D of the consumer is the marginal utility curve \mathrm(MU), or the curve marginal income\mathrm(MR) .
In a monopsony, there are not many buyers in the market, but one. What will the supply curve look like under these conditions?
It should be noted that the supply curve under these conditions will reflect not only the supply of one individual firm, but the entire industry as a whole. After all, the monopsonist will face the entire market, and many manufacturers in a certain industry will compete for his desire to purchase goods.
If there is only one buyer, and there are many sellers, then competition will break out between the sellers, and the price of the product will fall. Thus, the monopsonist is able to dictate his price for the purchased product and set it at a lower level than under perfect competition.
It is known that a monopolist, controlling the price of a product, is able to set it at a level that will exceed the equilibrium price level under perfect competition, and set the volume of production lower than under perfect competition. What is the volume of purchases from the monopsonist? Above or below the level of perfect competition? The answer to this question is ambiguous. Everything will depend on the supply conditions of the industry as a whole and the corresponding supply price level. But before considering the terms of the offer, we need to consider the question: does the power of the monopsonist depend on the specific type of product? Obviously yes. Manufacturers of non-perishable products are able to resist the pressure of a monopsonist, because they can look for another buyer for some time and hold on to the goods. But what should producers of perishable goods (for example, agricultural products) do? They are probably more dependent on the buyer dictating their terms. Naturally, this is far from the only example. For example, a product such as diamonds is not a perishable product. However, the De Beers corporation, which is a monopsonist when purchasing diamonds from mining companies, dictates its terms on the market. Often, the conditions of monopsony are established in the labor market.
So, a monopsonist buyer, by controlling the volume of his purchases, is able to influence the market price of the purchased product. That is, he is a “price seeker”. From the point of view of the monopsonist, the market supply price will reflect the existing dynamics of average costs of the entire industry. Aggregate offer The industry is characterized by a curve that reflects the totality of average costs of different firms in this industry (Fig. 2).
The monopsonist's supply curve is the industry's average cost curve.(\mathrm(AC) ). Each point located on the curve \mathrm(AC) corresponds to a certain level of the supply price of the monopsonist buyer when he purchases any quantity of goods \mathrm Q .
As can be seen from the graph (Fig. 2), for a monopsonist the supply price can be:
- Descending - descending branch of \mathrm(AC) (quite a rare case);
- Ascending - ascending branch of \mathrm(AC) .
Thus, the supply price in a market controlled by a monopsonist can be: rising, so decreasing. Consequently, the marginal costs of purchasing the goods \mathrm(MC) of the monopsonist buyer cease to be constant (as in conditions of perfect competition); they can be increasing or decreasing (since \mathrm(MC) reflects the dynamics of the average cost curve \mathrm(AC) ).
Let's consider the most common situation when the demand \mathrm D of the monopsonist intersects the industry supply curve \mathrm(AC) with an increasing supply price (Fig. 3).
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A monopsonist buyer, with an increasing supply price, will also face increasing marginal costs of purchasing products; the \mathrm(MC) curve will be above the ascending branch of the supply curve \mathrm(AC) . In Fig. 3, these curves are interpreted as follows:
- \mathrm(AC) is the curve of average costs that have established in the industry (for the monopsonist, this is the supply curve of the product);
- \mathrm(MC) is the curve of marginal costs that have established in the industry (for a monopsonist this is the curve of its marginal costs of purchasing products);
- \mathrm D is the demand curve (for the monopsonist it is the marginal utility curve, or marginal income \mathrm(MU) , or \mathrm(MR) ).
Let's find the equilibrium point of the monopsonist at the intersection of the curves \mathrm(MC) and \mathrm(MR) .
The point \mathrm E is where the curves \mathrm(MC) and \mathrm D intersect. On the curve \mathrm(AC) there is a point (\mathrm E)_1, which determines the level of the acquisition price of the monopsonist buyer (\mathrm P)_1. It is lower than the price (\mathrm P)_0, which would be established under conditions of perfect competition among buyers. On this chart A monopsonist buyer buys a product in quantity (\mathrm Q)_1, which is less than quantity (\mathrm Q)_0 under perfect competition. Thus, the monopsonist determines the quantity of goods purchased by comparing his \mathrm(MC) and \mathrm(MR) and finding the point of their intersection.
Analysis of imperfect competition on the part of the monopsonist leads to the same conclusions regarding the deviation of prices from the equilibrium state under perfect competition. The only difference will be that the monopolist sets the price above the level of conditions of perfect competition, and the monopsonist - below the level that would be under perfect competition.
Comparison of monopoly and monopsony equilibrium
- Under monopoly conditions, the demand curve is divided into a \mathrm D curve and a \mathrm(MR) curve. Under monopsony conditions, the supply curve is divided into the \mathrm(AC) curve and the \mathrm(MC) curve (marginal acquisition costs).
- Under a monopoly, the marginal revenue curve is \mathrm(MR) . Under monopsony conditions, the marginal revenue curve of the monopsonist buyer is the \mathrm D curve, or the marginal utility curve \mathrm(MU) .
- Under monopoly conditions, all possible points of the market selling price of a product lie on the demand curve \mathrm D . Under monopsony conditions, all points of the market purchase price of a product lie on the supply curve \mathrm(AC) .
- When analyzing a monopoly graphically, the intersection point of the curves \mathrm(MC) and \mathrm(MR) is first sought, and only then a vertical line is drawn to the demand curve \mathrm D . This is how the selling price level is determined. When analyzing a monopsony, the intersection point of the curves \mathrm(MC) and \mathrm(MR) (\mathrm D) is first sought, and then a vertical line is drawn to the buyer-monopsonist supply curve \mathrm(AC) . This is how the purchase price level is determined.
- Under conditions of perfect competition on the part of the seller, the equilibrium price would be established at the level of intersection of the demand curve \mathrm D and the supply curve \mathrm(MC) . And it would be lower than the monopoly price. Under conditions of perfect competition on the part of the consumer, the equilibrium price would also be established at the intersection of the demand curve and the supply curve for the buyer \mathrm(AC) . And it would be higher than the price of a monopsony.
In economics there is a concept opposite to monopoly. In such a situation, the market has a large number of sellers and only one buyer. This is a monopsony. There are plenty of examples of this phenomenon in everyday life. One of the most revealing is the labor market, where many workers try to sell their services and qualifications to a single enterprise. Price final product in this case it depends on the wishes of the buyer.
Prerequisites for the emergence of the labor market as an example
Since monopsony is characterized by consumer preferences, certain conditions must occur for it to occur. Directly on the labor market there are the following prerequisites for the emergence of such a situation.
- The company hires the majority of specialists in a particular profession from the total pool.
- The labor market involves interaction between many skilled, non-union employees and a large organization.
- The company independently sets the amount of wages, and its employees are forced to put up with this or look for another job.
- A certain type of work activity does not have high mobility due to geographical isolation, social conditions or other difficulties.
A pronounced monopsony in the labor market is not uncommon. It is most typical for small towns, where there is only one large enterprise acting as an employer. In a competitive market, entrepreneurs have a wide choice of personnel, so labor mobility is absolute.
Comparison with monopoly
The opposite phenomenon of monopsony is monopoly, which is a market system in which economic activity conducted by one seller with a large number of consumers. The company produces unique products that cannot be replaced. Consumers are forced to buy it or learn to do without it.
The same principles apply to monopsony. An example can also be the state. It often acts as the only buyer for certain types weapons. In both cases, there is an opportunity to influence price formation, which leads to gaining power over the market.
What are the limitations of dictatorship?
Despite the emerging opportunities, the power of a monopsony cannot be absolute due to certain restrictions in the economy. They are as follows.
- The power directly over the price of a product largely depends on its features and flexibility of supply.
- The characteristics of the current market situation, the costs of the production process, the size of the margin and other factors must be taken into account in order to increase the economic effect.
- The volume of production at which the difference between the actual and paid price is most optimal is selected.
- There is limited action due to potential cross-sector spillovers. Suppliers, if the outcome is unsatisfactory in terms of profit, can be repurposed to produce other products.
Thus, we can come to the conclusion that monopsony in economics is not entirely absolute power over the market. There are certain factors that can affect the situation without control from external structures.
Main types
Many examples of monopsony can be given, but they will have their own characteristics, so it is customary to divide situations into specific types. Each of these groups will have its own character traits. The most common is state monopsony, which is characterized by the purchase of products at stable prices.
It is also possible for a market situation to arise as a result of competitive interactions. This is a commercial monopsony. She is characterized by an unstable character. For a number of reasons, it collapses very quickly. However, on the scale of a balanced market, such a phenomenon can lead to negative consequences, like a monopoly. For example, artificial price reductions and economic coercion of counterparties to conclude unfavorable contracts can be carried out.
There are not many examples of monopsony in its pure form. This phenomenon is quite rare, like an absolute monopoly. This situation is possible in small towns or with government participation. Certain types of goods are simply prohibited for other consumers to purchase.
Analysis of price formation under monopsony
Before approaching the analysis of prices in the conditions of the presented situation, it is necessary to compare the markets of perfect and imperfect competition. In the first case, a large number of sellers and buyers are involved in trade relations. None of them can affect the final cost of the product.
On the graph, with perfect competition for the manufacturer’s products, the demand curve will take on a horizontal appearance, and the supply line will take on an ascending shape. The constancy of the price for the buyer is an indicator that he does not influence it in any way, that is, the necessary conditions for equilibrium are clearly met.
The situation changes with a monopsony in the market. Give examples on this moment there is no particular need. Only one buyer is a participant in trade relations. In this state of the market, the supply curve should take on a completely different shape. It will no longer be horizontal.
Illustrative examples of monopsony in Russia
The one in question exists in the northern territories Russian Federation where the cities were closed type. They worked directly for the defense. Monopsony is found in those places where one of the most illustrative examples is the Ministry of Railways.
In Russia, state formations act as monopsies. The Ministry of Defense is the only buyer on the arms market. The same thing happens in rocket science. The Federal Space Agency is engaged in the acquisition of products without any competitors.
Causes of occurrence and methods of eliminating the phenomenon in the Russian Federation
Reasons for the formation of monopsony in the territory modern Russia were recently revealed. Liberalization of prices with the dominance of enterprises as buyers in Russian markets in the regions leads to abuse of power established in the market. The situation is aggravated by administrative restrictions that impede the normal operation of economic structures.
During special events, a methodology for analyzing regional markets was developed for the timely detection of abuses of power by business entities. It involves a detailed description of the trading platform and the definition of territorial limits.
The proposed methodology was tested using the example of agro-industrial markets. It can be used to implement practical research. The falsity of the macroeconomic approach to carrying out general analysis represented markets throughout the state. Consideration trading platforms from a regional perspective provided an opportunity to see the abuse of monopsony. The main problem is the relatively low level of local competition associated with the difficulties of transporting and storing manufactured products.
As a final part
As for examples of monopsony in the world, the most obvious of them was given earlier. The labor market across the planet is considered problematic. However, trade unions and other effective measures can save from such a situation, so the power of the employer in many cases is not absolute. The modern buyer always takes into account economic feasibility; therefore, monopsony does not reach the level of outright dictatorship.
Monopsony in the labor market.
Monopsony - ego market structure characterized by the presence of a single buyer in the market. Monopsony is a common phenomenon in the labor market, especially in small cities and towns, the economy of which depends on the labor force located in the city. large enterprise. In such localities, the monopolist has the opportunity to benefit from its unique position in the market by influencing the market price in the same way that a monopolist does.
Rice. 8.12.
Since the monopsonist buys on the market all or a significant amount of the labor resource offered on it, he cannot endlessly buy it at the same price. The supply curve faced by the monopsonist in the market is characterized by a positive slope. In order to hire additional workers, the monopsonist is forced to offer more high bid wages.
In table Figure 8.1 shows the change in the average, total and marginal costs of a monopsonist for a labor resource.
Table 8.1
Average, total and marginal labor costs of a monopsonist
If a monopsonist wants to increase the number of employed labor resources from 10 to 11 people, he has to increase the wage rate. Since wages are not differentiated, with the hiring of an additional worker it increases not only at the limit,
but also all previously hired employees. The same thing happens when hiring the 12th employee, etc. As a result, M/S is superior L1S for any number of hired workers (Fig. 8.13). The monopsonist will hire workers until the equality M/C £ = MNR £ is established. In Fig. 8.13 point E t shows the equilibrium of the monopsonist in the labor market. In this case, it will be hired E t workers with wages ¥ t. In the labor market without mononsonic power, equilibrium would be established at the point E s. At the same time, you would get a job E s workers, and wages would be ¥s rub. Like a monopolist in a goods market, a monopsonist extracts economic rent from its unique position. The source of rent is the difference between wages worker and the income from the marginal product of his labor. In Fig. 8.13 the value of this rent is represented by a rectangle L E T V ¥ t.
Rice. 8.13.
Monopoly power trade unions in the labor market.
Perfect competition in the labor market, as well as in commodity markets, practically does not occur in real economic life. A much more realistic situation is the meeting on the market of an individual worker and an employer incorporated in one form or another. With rare exceptions, workers compete with each other for workplace, and not employers - for the right to hire this or that person. The employer gains market power and can use it to extract rents, just as a monopsonist does.
Workers can resist the market power of an employer by forming a union to protect their interests. Traditional form Trade unions, uniting workers employed in the same industry or at the same enterprise, became such associations.
- Such settlements are called single-industry in Russia settlements or single-industry towns. There are more than 300 single-industry settlements in Russia.
Aimed at lowering labor wages.
What are monopoly and monopsony in the labor market? Do they occur in the Republic of Belarus?
Monopsony in the labor market
Monopsony in the labor market (11)
What is monopsony in the labor market?
What is the net loss to society due to monopsony in the labor market?
The net losses of society due to the existence of a monopsony in the labor market will be the area of the triangle AEB (Fig. 8.33), i.e. value 1A (16 - 8) (12 - 8) = 16.
Examples. In fact, monopsony labor markets are not typical in the United States. Typically, for most workers there is a large number of potential employers, especially when these workers are sufficiently mobile, that is, they are ready to change their specialty and place of residence. Moreover, as we will soon see, in labor markets monopsony is often opposed by trade unions. Nevertheless, economists have found evidence of the existence of monopsony in such different labor markets as the labor markets of nurses, professional athletes, government teachers.
MONOPSONY - a market position where numerous sellers are confronted by one buyer company. This situation may arise in individual countries or regions that are not sufficiently connected to trade centers, when manufacturers can sell their products to only one company, allowing it to lower prices to an even greater extent than is possible under oligopsony. Often in former colonies, peasants could sell their products (coffee, cocoa, rice, cotton, etc.) to only one large foreign buyer company, which led to unequal exchange. English economist J. Robinson, who coined the term "M." into economic literature, also attributed it to the labor market. Often in certain areas, workers as sellers of their labor power are confronted by one company that employs them. In this case, it can lower wages and worsen other conditions of employment. In many regions of developing countries, in conditions of mass hidden unemployment, the emergence of industrial enterprises, including those owned by foreign capital, makes it possible to hire workers, paying them meager wages. According to Western scientists, labor market labor is eliminated due to the union of workers into powerful trade unions and wages.
Monopsony. Activities of trade unions in the labor market.
The occurrence of dead weight losses in the monopsony market is similar to the monopoly market. Let's consider the choice of a monopsonist in the labor market (Fig. 8.32).
The only buyer on the labor market will hire 8 units. labor and will offer wages w - 8. In the absence of monopsony, the demand for labor would be 12 units, wages would increase
The market for professional athletes is also of interest. Although the potential employers here are quite numerous, this market has historically been characterized by behind-the-scenes intrigues, cunning methods of collusion, which are still very successfully used by employers to limit competition in the hiring of labor. The National Football League, the National Basketball Association, the American Baseball League, and the National Baseball League have developed systems of rules that tie a player to one team and give him virtually no opportunity to move on to the highest bidder in an open (competitive) market. Specifically, when recruiting a new player, the team that selects the player has the exclusive right to enter into a contract with him. Moreover, the so-called reserve clause in each player’s contract gives the team the exclusive right to purchase his services for the next season. Recent litigation and collective bargaining agreements that provide free agent status for certain skilled players are helping to make professional athlete labor markets more competitive, although unspoken monopsony continues to exist.
So far we have talked about the situation when an employer enters a competitive labor market, where wage rates are a given for him. But if the company or firm is the only buyer of labor of this qualification or in this region, how then do the employment and wage relations develop? Unlike firms forced to accept the level of wages set by the market, which is expressed in a horizontal supply curve, monopsony companies are forced to deal with a supply curve, which is directed upward, namely the market supply curve , where each additional employee entering into an employment relationship costs more. To increase production, a monopsony company must increase wages, unlike a competitive company, which can increase production at a stable wage level.
Clashes between employers and trade unions can at times, especially in poor economic conditions, be violent. The strike struggle sometimes reaches such great intensity that it can even paralyze the entire economic life. It is no coincidence that in many countries the state interferes in relations between businessmen and workers and their trade unions. The result is a kind of triangle. It interacts with unions of entrepreneurs, trade unions and the state, which thereby regulates many aspects of labor relations and wages. This regulation affects the amplitude (scope) of fluctuations to which the amount of wages is subject to, depending on a number of circumstances. The maximum limit of remuneration for labor is determined by the upper limit of the cost of labor, increased demand for workers in a certain profession and a certain monopolization of the market by the trade union of workers. The minimum limit is formed taking into account the lower limit of the cost of labor, as a result of the increased supply of labor and the formation of a monopsony on the part of employers.
When analyzing this graph, it is important to clearly understand the interpretation of the curves depicted. We will have to look at them either through the eyes of a monopsonist or through the eyes of a trade union monopolist. As in Fig. 11.7 and fig. 11.8, subscripts in the form of the letters U (from English, union - union, association) and M (from English, monopsony - monopsony) will indicate belonging to two opposing forces to the trade union - monopoly and monopsony in the labor market.
The market in which a monopolist trades with a monopsonist is a bilateral monopoly. In the labor market, a two-way monopoly can arise when representatives of a union and a company that hires workers of a certain skill meet to negotiate wages. Rice. Figure 13.17 shows a typical two-way trading pattern. The S L curve represents the supply of skilled labor, and the firm's demand curve for labor is represented by the product marginal revenue curve DL.
In some cases, a monopsony is essentially complete in the sense that there is only one single large employer in the labor market. For example, the economy of some cities and towns depends almost entirely on one large firm. A silver mining operation may be your primary location in a remote town in Colorado or Idaho. A textile mill in New England, a pulp and paper mill in Wisconsin, or some other processing plant in an agricultural area often provide a large share of employment in the area concerned. Thus, Ana onda Mining is the main employer in the city of Butta, Montana.
All of the above examples spoke of monopoly and oligopoly as phenomena of a certain power over the market price on the part of the seller. However, a certain control over prices can also arise on the part of the buyer, and then this phenomenon will be called monopsony and oligopsony. If the term monopoly means one seller, then monopsony means one buyer. For example, the monopsonist De Beers dictates his terms for the purchase of diamonds to the producers of this product in different countries. Monopsony is often established in the labor market.
As is known, a monopolist, having power over the price, can set it at a level exceeding the level
