Monopsony Abuse or Efficient Purchasing? Quality Measurement in the Tobacco Leaf Market

Posted by D. Daniel Sokol

Andrew Hanssen (Colby - Econ) asks Monopsony Abuse or Efficient Purchasing? Quality Measurement in the Tobacco Leaf Market.

ABSTRACT: In the recent case of Deloach v. Philip Morris, plaintiff tobacco growers accused the major cigarette manufacturers of using unusually structured tobacco auctions to engage in monopsony collusion. The DeLoach case produced one of the largest antitrust settlements ever. The objective of this paper is to evaluate the claims of exercise of monopsony power by exploring why tobacco wholesaling systems (which have evolved dramatically over time) have taken the various forms they have. The paper concludes that the ways in which tobacco leaf has been sold—including the allegedly collusive auctions—developed to combat the fundamental problem that the quality of tobacco leaf is very costly to measure.