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. Historically (for example) this was the great complaint of farmers against railroad monopolies. The purpose of modern international trade proposals is not simply to create positive sum trades, but to shift those oligopoly and oligopsony points to first world nations. Likewise international banking regulation. 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.


Occupational Licensing (7 links)
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. Sometimes occupational licensing is a rent seeking corruption of markets. Everybody opposes that.
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.
Break 'Em Up: Recovering Our Freedom from Big Ag, Big Tech, and Big Money (book) (1 link)
"Every facet of American life is being overtaken by big platform monopolists like Facebook, Google, and Bayer (which has merged with the former agricultural giant Monsanto), resulting in a greater concentration of wealth and power than we've seen since the Gilded Age. They are evolving into political entities that often have more influence than the actual government, bending state and federal legislatures to their will and even creating arbitration courts that circumvent the US justice system. How can we recover our freedom from these giants?"
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.
Econ 101 No Longer Explains the Job Market [More...]
"Together with the evidence on minimum wage, this new evidence suggests that the competitive supply-and-demand model of labor markets is fundamentally broken. If employers have the power to set wages, then not just minimum wage, but other labor market policies -- for example, union-friendly laws -- can be expected to help workers a lot more than popular introductory economics textbooks now predict."
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."
Rethinking collective action and U.S. labor laws in a monopsonistic economy [More...]
"Many economists point to this disconcerting rise in market power as leading to a simultaneous rise in monopsony power—the ability of the firm to have an influence over the determination of workers’ wages—which may contribute to the persistence of stagnant wages despite relatively low headline unemployment numbers in recent times."
Standard Oil, Monopoly and Predatory Pricing (3 links)
For decades libertarians have relied on the egregious revisionist history of Standard Oil by John McGee of the Chicago School to declare predatory pricing and monopoly rare and impractical. This claim has been thoroughly refuted by legal and economic research, both empirical and theoretical. Now it is up to the courts to catch up with academia.
The Cost of America’s Oligopoly Problem [More...]
An innovative new study finds substantial, increasing deadweight losses resulting from oligopolistic behavior and points to the important role that startup acquisitions—particularly by large tech firms—played in driving this trend.
The Food And Agricultural Global Cartels Of The 1990s: Overview And Update [More...]
Global cartels give the lie to libertarian claims that government regulation smothers competition with red tape. "Needless to say, global cartels are also the most injurious price fixing ventures yet devised, causing massive losses in market efficiency, losses in income for customers, and losses in faith in the honesty of businessmen and the integrity of market institutions." Lysine, citric acid, vitamins A and E and other chemicals.
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."
What Is a Billionaire? [More...]
"A Billionaire Is Someone Who Runs a Very Important Tollbooth... Put another way, the Bloomberg billionaire index isn’t a list of the most important Scrooge McDuck’s, it’s a list of the biggest tollbooth operators in the world... they are (largely) men with a strategic position of power protected by public laws and rules... At the end of the day, tollbooths are nothing but bottlenecks on a road on which we would otherwise travel faster and more freely."


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