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Austrian Monopsony Theory

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Physiocrat Posted: Wed, Dec 19 2012 4:10 AM

I wondered if any of you listened to Xavier Mera's talk at the Austrian Scholars Conference 2010 on Monopsony? His full paper is here.

His main claim seems to be that regulation and monopolisation of markets by government reduce the competition for the demand for labour and as such lowers their wage. He argues that owners of capital and benefit whilst labourers gain but I can't quite remember how.

Has anyone any thoughts on the matter?

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Raoul replied on Wed, Dec 19 2012 12:20 PM

I read it some weeks ago. I found it interesting but I wonder how it fits with the doctrine of the imputation of monopoly gains to the specific factors (see MES, p677 and f.). Labor might be such a factor. 

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Neodoxy replied on Wed, Dec 19 2012 12:40 PM

Rothbard writes off monopsony in Man, Economy, and State. He argues that there can never truly be a monopoly on labor because its the most non-specific factor of production and that therefore no industry could ever have a monopoly over employment. Like most everything Rothbard wrote in his chapter on competition I believe that this claim is a combination of truth and falsehood.

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I suppose it depends to some extent what we mean by monopsony. Maybe it would be more helpful to call Mera's concept Oligopsony instead.

As an aside though, Rothbard called anything which depended massively on government intervention a monopoly not a body who could monopolise the entire supply of a good.

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Raoul replied on Wed, Dec 19 2012 1:08 PM

As far as I remember, the paper doesn't really deal with "monopsony" as such. It's more about the purchasing behavior of legal monopolies regarding the factors they use. Because they are monopolies, by hypothesis, they are the only purchasers of their specific factors. Now, because legal monopolies can easily restrict their production in order to obtain higher prices, they need less factors. What are the effects on the prices of these factors, etc ?

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That's about the correct summation Raoul. One thing that troubles me is that how can it be said that a monopolist reduces output? To what level are we comparing it to. Rothbard's monopoly theory states only that the price will increase or the quality decrease, not that it will produce less.

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Raoul replied on Wed, Dec 19 2012 1:30 PM

That troubles me as well, but Rothbard's critique is only directed against the concept of monopoly price under free competition. At the opposite, Rothbard thinks the monopoly price concept is meaningfull where there's violent intervention in the market (see MES, p903 and f.)  According to Rothbard, there's a conceptual difference betwen free market price and interventionist price. Méra explores the later hypothesis.

 

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Wheylous replied on Wed, Dec 19 2012 2:41 PM

Here is Cliffor Winston (not Austrian) on monopsony:

 

Firms can also be indicted under the antitrust laws for anticompetitive behavior that enables
them to become the sole buyer of a product. In practice, such monopsony power has primarily been a
concern of public policy because a sole employer in a market tends to pay employees below the value
of their marginal product. But instead of prosecuting firms that set monopsony wages, the government,
as codified in the National Labor Relations Act, has guaranteed the right of employees to organize and
engage in collective (union) bargaining with their employers to determine wages and other terms of
employment. Collective bargaining has raised wages, but it cannot be justified as a counter to monopsony power in the labor market because such power is rare and not much of a factor in low wage rates
(Boal and Ransom 1997)
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