Looking at the Monopsony in the Mirror

INTRODUCTIONAlthough still a distant second to monopoly, buyer power and monopsony are hot topics in the competition community.1 The Organisation for Economic Co-operation and Development (OECD),2 International Competition Network (ICN),3 and American Antitrust Institute (AAI)4 have studied monopsony and buyer power recently. The U.S. Department of Justice and Federal Trade Commission pay more attention to buyer power in their 2010 merger guidelines than they did in their earlier guidelines.5 With growing buyer concentration in commodities such as coffee, tea, and cocoa, and among retailers, buyer power is a human rights issue.6As this Article discusses, both monopolies and monopsonies have significant market power. A monopolist typically is characterized as the only or dominant seller in town.7 (Think of the only gasoline station along a long highway stretch, which despite its low costs charges outrageously high prices.) The monopolist can raise its price above competitive levels. The monopolist can also reduce, contrary to its customers' wishes, the quality of its products and services, product variety, and innovation. A monopsonist, on the other hand, is typically characterized as the only or dominant buyer in town.8 (Think of the factory in the one-factory town where you either work on the company's terms or you are on your own.) The monopsonist can lower the price below competitive levels for the goods and services it buys.9 The monopsonist can also reduce the quality of products it purchases and the amount of innovation that an otherwise competitive market would foster.10 As one state supreme court recently commented:The antitrust laws are as concerned about abuse of monopsony power to pay prices below a competitive level as they are about abuse of monopoly power to charge prices above a competitive level. The seller to the monopsony has been harmed as much as the buyer from the monopoly.11Monopsony and buyer-power claims are likely to arise in several important industries, including agriculture,12 health insurance,13 and retail.14 Recently, for example, the DOJ and U.S. Department of Agriculture (USDA) examined buyer power in the seed, hog, livestock, poultry, and dairy industries.15 The DOJ and USDA deserve credit for setting up their workshops. Professor Peter Carstensen, among others, expressed relief:For years many of us who follow agricultural competition issues have lamented the failure of both antitrust enforcement and market facilitating regulation to deal with continuing problems that farmers and ranchers confront in both the acquisition of inputs and the marketing of their production.16Over 4,000 people attended the public workshops in Iowa, Alabama, Wisconsin, Colorado, and Washington, D.C.17 The DOJ received over 18,000 public comments.18 Participants complained that the lack of antitrust enforcement enabled "a severely concentrated marketplace in which power and profit are limited to a few at the expense of countless, hard working family farmers" and that "high input prices, low commodity prices, or other hardships, hav[e] invested particular suppliers or buyers with greater market power."19 Many, the DOJ observed, "specifically raised the issue of monopsony power," and some expressed concern that the enforcers, courts, and competition laws were "inattentive to the monopsony problem."20 Participants complained how processors "depress[ed] the prices of crops or animals below competitive levels."21 Others raised social and moral concerns, such as the environmental toll from monopsonies.22 The U.S. livestock industry, observed several states, is more concentrated today than in 1921, when Congress enacted the Packers and Stockyards Act to respond to a market the "Big Five" packers controlled "and to ensure fair competition and fair trade practices in the marketing of livestock, meat and poultry."23 One account of the hearings stated, "What applies across the board-in cattle ranching and dairy and hog farming-is the stark and growing imbalance of power between the farmers who grow our food and the companies who process it for us, and how this imbalance enables practices unimaginable in any competitive market. …