Market Power

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In a market exchange, there is producer surplus and consumer surplus. Market power is a market failure that occurs when producers can raise prices above the marginal costs to capture more of the surplus. Usually through monopoly, oligopoly or other bottleneck techniques. Libertarians often deny the existence of market power.

There is another form of market power due to consumer oligopsony. This is a common power of employers, reducing labor costs, and a power employed by WalMart against its wholesalers.

Market power lies at the points of chains of sales where oligopoly or oligopsony exist. These price makers take the vast majority of consumer surplus in the maufacturing chain, leaving the competitors at other points in the chain with essentially no surplus, at subsistance levels. The purpose of international trade proposals is not simply to create positive sum trades, but to shift those oligopoly and oligopsony points to first world nations. While there might be positive sum benefits in the international picture, tarriffs and other trade barriers might capture more of the surplus in the third world nations even when there is less overall surplus. In any event, the result is strong disparity in the distribution of the surplus.

Countervailing power in the forms of Unions, Anti-Trust Policy and Minimum Wage are the major ways of dealing with market power.

Links

Occupational Licensing (1 link)
A frequent hobbyhorse of libertarians, who like trotting out a few examples of excessive requirements. Per usual, they are ignoring the benefits while exaggerating the harms.
A Shuffle of Aluminum, but to Banks, Pure Gold [More...]
Goldman Sachs has used its control of aluminum warehousing to artificially raise the price of aluminum by several percent. Other investors are now planning to do the same for copper.
Diamonds Are Bullshit [More...]
Diamonds have been controlled by the DeBeers monopoly for roughly 100 years. Which has systematically lied about their value and importance for most of that time.
Firm Market Power and the Earnings Distribution [More...]
Market power, a form of market failure, produces a positive relationship between a firm's labor supply elasticity and the earnings of its workers. This paper provides empirical evidence measuring market power and showing that employers with more power pay lower wages. Especially at lowest incomes.
Grocery Goliaths: How Food Monopolies Impact Customers [More...]
"This growing consolidation of the food supply is severe at every step of the food chain, from farm to fork. And it impacts not only farmers and food manufacturers, but also consumers in the form of reduced consumer choices and higher grocery prices."
How Market Power Leads to Corporate Political Influence [More...]
"Neoclassical economic theory assumes that firms have no power to influence the rules of the game... This is true only in competitive product markets. When firms have market power, they will seek and obtain political influence and vice versa."
Labor Market Monopsony: Trends, Consequences and Policy Responses [More...]
"This issue brief explains how monopsony, or wage- setting power, in the labor market can reduce wages, employment, and overall welfare, and describes various sources of monopsony power." "But in the presence of anti-competitive firm behavior or labor market frictions that limit competition, policy must take a multipronged approach to promoting wage and job growth."
New research on market power and productivity [More...]
"The traditional argument for mergers and acquisitions is that the joining of two companies will lead to efficiency gains that will help customers and the economy overall[...] What the two economists find is that the efficiency gains that were supposed to appear didn’t in fact happen."
Predatory Pricing: Strategic Theory and Legal Policy [More...]
A US Department of Justice analysis that points out that history and economic theory teach that predatory pricing can be an instrument of abuse, yet courts adhere to a static, non-strategic view of predatory pricing, believing it to be an economic consensus. But this is a consensus most economists no longer accept.
The Market Power Story [More...]
Noah Smith spanks Tyler Cowen for Tyler's ineffectual criticisms of a major paper on Market Power as a cause for economic ills. Among other things, Tyler does not consider "the inefficiency of monopolistic competition in standard theory".
Understanding the Meaning of 'Power' [More...]
"Economics writing is filled with loose language that muddles as much as it clarifies."

Quotations

The invisible hand of the market makes a very good pickpocket.
Mike Huben