Buyer Power: Is Monopsony The New Monopoly?

FOR A NUMBER OF YEARS, commentators have debated whether the United States has a monopoly problem. But as part of the recent conversation over the direction of antitrust law and the continued appropriateness of the consumer welfare standard, the debate has turned to whether the antitrust agencies are paying enough attention to monopsony issues.1 A concept that appears more in textbooks than in case law has suddenly become mainstream and practitioners should be aware of developments when they counsel clients on issues involving supply-side concerns.

This topic is not going anywhere any time soon. Particularly as it affects employer power and restraints in the labor markets, monopsony has drawn the attention of politicians and the antitrust agencies. Senator and presidential hopeful Cory Booker and members of the newly formed Congressional Antitrust Caucus have written letters to the anti - trust agencies expressing concern over the agencies' treatment of labor monopsonies.2 Likewise, in 2017 and again in 2019, Senator and presidential hopeful Amy Klobuchar introduced the Consolidation Prevention and Competition Promotion Act, which would insert "or a monopsony" after every instance of the term "monopoly" in Section 7 of the Clayton Act. The Federal Trade Commission has held a number of public hearings to discuss the topic, and both the FTC and Department of Justice recently brought enforcement actions against companies and individuals accused of suppressing input prices in labor markets. Despite the recent surge of interest in monopsony, however, the paucity of case law on the topic, as well as the lack of clear direction from courts, means that the antitrust agencies may well have a more difficult time advancing cases premised on buyer power, as compared to seller power.

In this article, we discuss: (1) the debate over whether the antitrust laws should condemn monopsony any time it exists—or only when it can also be shown to harm consumer welfare; (2) historical case law on monopsony; (3) recent cases involving monopsony issues; and (4) counseling considerations for monopsony issues. It remains to be seen whether we will see significantly increased enforcement against buyer-side agreements and mergers that affect buyer power and whether such enforcement will be successful, but what is clear is that the antitrust enforcement agencies will be exploring the depth and reach of these theories and clients must be prepared for investigations and enforcement actions implicating these issues.

The Debate over Monopsony and Consumer Welfare

While monopoly is a single (or dominant) seller dealing with multiple buyers, a monopsony is a single (or dominant) buyer dealing with multiple sellers. The DOJ and the FTC have observed that in "important respects, monopsony is the mirror image of monopoly."3

The recent focus on monopsony issues is closely tied to the revival of the debate over the consumer welfare standard. The evolving debate over how enforcers and courts should define the limits of the consumer welfare standard—and even the continued appropriateness of the standard—has important implications for how far enforcers and the courts will go to address monopsony issues.

Some commentators, for instance, argue that a consumer welfare standard protects only those who purchase goods in a relevant downstream market.4 Under this view, monopsony is only an issue if it ultimately causes consumers to pay higher prices. If it merely redistributes wealth, for instance, between employers and employees, this is not an issue of concern for antitrust enforcers or courts.

Others contend that consumer welfare refers to the welfare of all consumers in society, who can be protected only when allocative efficiency is maximized.5 The agencies explain that a monopolist restricts supply and forces market prices up, while a monopsonist restricts its purchases to force market prices down. In either case, there is a misallocation of economic resources. Proponents of this view argue we should stop there and find the activity that creates a monopsony (whether by merger or agreement) unlawful. This latter understanding of the goal of the antitrust laws would put far more focus on monopsony issues than has traditionally been the case.

Yet, as others have pointed out, the story does not end there. While the impact on consumers from higher prices is clear, the impact on consumers if a supplier faces lower prices for its goods is less so. In the first instance, a monopsonist may not be able to reduce downstream prices by restricting purchases—either because of the nature of the industry or because buyers typically tend to outnumber sellers.6 Second, even in the context of bargaining, the agencies have pointed out that larger buyers are not necessarily in a stronger bargaining position.7

But suppose the monopsonist is able to receive lower prices, thereby lowering its costs. In that situation, consumers could benefit. Because low prices can benefit consumers—at least in the short run—some argue that unless it can be shown that there will be some long-term detrimental effect on consumers in the form of lower output, we should not worry about monopsony conduct. That same basic intuition underlies why predatory pricing is found to be unlawful only if the initial low prices can be shown to be followed by a period of higher prices.

While this conception of the consumer welfare standard may seem appealing (after all, prices for consumers are lower), some posit that the consumer welfare standard, or at least an interpretation of the standard concerned primarily with downstream prices, has contributed to the creation and maintenance of buying power in labor and other markets. The growth in employer market power in labor markets is hypothesized to have led to depressed wages, reduced hiring and output, and increased economic inequality.8

Indeed, President Barack Obama's Council of Economic Advisers released an issue brief examining labor monopsony issues, which cited evidence suggesting that labor monopsonies in a broad range of settings are restricting employee pay increases. In its brief, the Council also discussed the possibility that increased consolidation in the economy could be enhancing employers' labor monopsony power.9 Some of the factors commentators have cited as leading to increased buying power in labor markets include the proliferation of noncompete agreements, rising employer concentration, implicit and explicit collusion among employers, high transaction costs for switching jobs, and the decline of labor unions.10 Several of these activities could conceivably result in lower prices for consumers by reducing producers' input costs— putting the activities outside the reach of a consumer welfare standard focused on downstream prices—but would result in lower wages for employees.

In the recent debate, some commentators have advocated for antitrust enforcers and private plaintiffs to play a greater role in curbing anticompetitive practices they believe are leading to depressed wages.11 But others have cautioned against jumping to the conclusion that rising employer concentration or...

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