Monopsony in Law and Economics

by Roger D. Blair , Jeffrey L. Harrison

• ISBN13: 9780521762304
• ISBN10: 0521762308
• Format: Hardcover
• Copyright: 2010-09-06
• Publisher: Cambridge University Press

Summary

Most readers are familiar with the concept of a monopoly. A monopolist is the only seller of a good or service for which there are not good substitutes. Economists and policy makers are concerned about monopolies because they lead to higher prices and lower output. The topic of this book is monopsony, the economic condition in which there is one buyer of a good or service. It is a common misunderstanding that if monopolists raise prices, then monopsonists must lower them. It is true that a monopsonist may force sellers to sell to them at lower prices, but this does not mean consumers are better off as a result. This book explains why monopsonists can be harmful and the way law has developed to respond to these harms.

Table of Contents

Preface	p. xiii
Introduction	p. 1
Introduction	p. 1
Some Recent Examples	p. 2
Bid Rigging at Antique Auctions	p. 2
Information Sharing at Treasury Auctions	p. 3
American Express and the Boston Fee Party	p. 5
Collusion on Campus: Financial Aid	p. 6
Collusion in Baseball's Free Agent Market	p. 8
The Market for College Athletes and Coaches	p. 10
Monopsony and Agriculture	p. 11
Upheaval in Health Care Markets	p. 12
Plan of the Book	p. 14
The Antitrust Laws and Monopsonistic Forms of Conduct	p. 16
Introduction	p. 16
The Sherman Act	p. 17
Agreements in Restraint of Trade	p. 17
Monopolization and Attempts to Monopolize	p. 20
The Clayton Act	p. 22
Price Discrimination	p. 23
Tying and Exclusive Dealing	p. 24
Mergers	p. 27
A Taxonomy of Monopsony Cases	p. 29
Collusive Monopsony	p. 30
Single-Firm Conduct	p. 36
Mergers	p. 40
Concluding Remarks	p. 40
Economic Theory of Monopsony	p. 41
Introduction	p. 41
A Simple Model of Monopsony	p. 41
The Welfare Effects of Monopsony	p. 43
The Effect of Monopsony on Output Price	p. 45
Collusive Monopsony	p. 48
The Economics	p. 48
Conditions Conducive to Collusive Monopsony	p. 49
Organizing and Implementing a Buyer Cartel	p. 50
Problems for Collusive Buyers	p. 51
Measuring Buying Power	p. 53
The Measurement of Buying Power	p. 54
The Buying Power Index: Pure Monopsony	p. 54
The Buying Power Index: The Dominant Buyer	p. 55
The BPI and the Department of Justice Threshold	p. 60
Market Definition and the BPI	p. 61
The Buying Power Index in Practice	p. 64
Concluding Remarks	p. 67
The Antitrust Response to Monopsony and Collusive Monopsony	p. 68
Introduction	p. 68
Judicial Assessment of Market Power	p. 69
Monopsony Pricing	p. 70
Abuses of Monopsony Power	p. 78
Price Effects	p. 78
Classical Model	p. 78
Inelastic Supply and Perishable Commodities	p. 79
The Role of Perishability	p. 81
Welfare Consequences of Collusion in the Context of Inelastic Supply	p. 82
All-or-None Supply Cases	p. 83
Nonprice Abuses	p. 85
Horizontal Market Division	p. 85
Bid Rigging	p. 86
Refusals to Deal	p. 88
Monopsony Leverage and Tying	p. 91
Monopsony and Merger Policy	p. 93
Horizontal Mergers	p. 93
Vertical Mergers	p. 96
Monopsony and Price Discrimination	p. 99
Monopsony and Unexploited Scale Economics	p. 101
Different Supply Elasticities	p. 103
Concluding Remarks	p. 104
Cooperative Buying Efforts	p. 106
Introduction	p. 106
The Theory of Joint Purchasing	p. 107
Efficiency-Enhancing Cooperative Buying Ventures	p. 108
Enhanced Efficiency and Increased Buying Power	p. 109
Antitrust Responses to Cooperative Buying Efforts	p. 113
The Ancillary Restraints Doctrine	p. 113
Application of the Ancillary Restraints Doctrine to Efficiency-Producing Buying Agreements	p. 115
Cooperative Buying	p. 115
Product Standardization	p. 117
Northwest Wholesale Stationers and U.S. Department of Justice Guidelines	p. 119
A Structural Dilemma	p. 121
Concluding Remarks	p. 122
Bilateral Monopoly	p. 123
Introduction	p. 123
Countervailing Market Power in Antitrust	p. 124
The Bilateral Monopoly Muddle	p. 126
The Correct Solution	p. 127
A Simple Model of Bilateral Monopoly	p. 128
A Formula Price Contract Solution	p. 131
Difficulties with Vertical Integration	p. 131
Vertical Integration by Contract	p. 132
Formula Price Contracts	p. 133
Performance Characteristics	p. 134
Limitations of Countervailing Power Considerations	p. 136
Transaction Costs	p. 136
The Risk of Seller Collusion	p. 138
Oligopoly and Oligopsony	p. 140
Concluding Remarks	p. 141
Appendix: Price Determination in Bilateral Monopoly	p. 142
Monopsony and Antitrust Enforcement	p. 146
Introduction	p. 146
Private Enforcement	p. 146
Antitrust Injury	p. 150
Antitrust Standing	p. 152
Applying the Standards	p. 156
Collusive Monopsony	p. 157
Price Fixing	p. 157
Market Division	p. 162
Boycotts	p. 163
Monopsonization	p. 163
Nonprice Efforts	p. 163
Predatory Pricing	p. 164
Mergers	p. 166
Price Discrimination	p. 167
Concluding Remarks and Measuring Antitrust Damages	p. 168
Monopsony in Action: Agricultural Markets	p. 172
Introduction	p. 172
The Monopsony Problem	p. 173
Monopsony Power and Contract Power	p. 174
Tying and Reciprocal Dealing	p. 179
Alternative Approaches to Agricultural Buying Power	p. 182
Concluding Remarks	p. 187
Monopsony in Action: The NCAA	p. 188
Introduction	p. 188
Introduction to the NCAA	p. 188
Collusive Monopsony	p. 189
The NCAA and Collusive Monopsony	p. 190
Organizing Limits on Prices and Quantities	p. 191
Revenue Sharing	p. 194
Sanctions for Cheating	p. 194
Antitrust Challenges to the NCAA Monopsony	p. 196
Walk-on Athletes: In re NCAA I-A Walk-on Football Players Litigation	p. 197
Undercompensation: White v. NCAA	p. 198
Numbers of Coaches: Hennessey v. NCAA	p. 199
Coaches' Compensation: Law v. NCAA	p. 201
Concluding Remarks	p. 204
Monopsony in Action: Physician Collective Bargaining: Monopoly or Bilateral Monopoly	p. 205
Introduction	p. 205
Economic Rationale of the State Legislation	p. 207
The Effect of Cooperative Bargaining	p. 208
Reaction of the Federal Trade Commission	p. 208
Economic Rationale of FTC Concerns	p. 211
State Action Doctrine	p. 211
Background	p. 212
Clear Articulation	p. 212
Active State Supervision	p. 213
Information Available	p. 215
Diagnosing Monopsony Power	p. 215
Statutory Guidance	p. 216
Monopsony and Monopsony Power	p. 217
Analysis of the Relevant Product (or Service) Market	p. 217
Analysis of the Relevant Geographic Market	p. 218
Measuring Monopsony Power	p. 218
Importance of Entry Barriers	p. 220
Implications of the BPI	p. 220
Calculating Market Shares	p. 221
Postnegotiation Review	p. 222
Concluding Remarks	p. 222
Final Comments	p. 224
Introduction	p. 224
The Evolving Nature of Antitrust Law	p. 224
Issues of Antitrust Injury and Standing	p. 225
Cooperative Buying and Bilateral Monopoly	p. 228
The Pervasivencss of All-or-None Supply	p. 230
Single-Firm Behavior	p. 231
Bibliography	p. 233
Index	p. 245
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