Wednesday, February 10, 2010
Posted by Jeff Harrison (University of Florida Levin College of Law)
There seems to be little doubt that buyers in many sectors of agricultural markets possess monopsony power. A typical scenario is one in which growers make substantial investments in their productive facilities and find themselves faced with one or a handful of buyers. This means lower prices for their output and, unless the buyers are able to push the sellers onto an “all or none” supply curve, decreased output. In short, as with monopolies there are both allocative and distributive consequences. Two problems are probably most responsible for the plight of sellers.
Unless less the monopsony power is actually possessed by an oligopsony involving collusion, an important factor complicates the measures that can be taken to relieve sellers. As with monopolies, monopsonies are not illegal. As Justice Hand noted, monopolization is different from simply being a monopolist. Monopolization requires some actions that undermine competition without off setting benefits. That seems to have evolved into the requirement of a predatory action. Similarly, monopsonization must be regarded as something other being a monopsonist. This requires the identification of the “bad acts” that are off limits to buyers vis a vis other buyers. And, if the law of monopsonization is to track that of monopolization, those acts should be of a predatory nature. That is, they should make no sense unless the firm’s primarily or only goal is to eliminate a competing buyer. The barriers to a lawsuit in this type of situation are formatable.
Sellers, whether selling to monopsonies or oligopsonies, are faced with another problem. The issue here is at what time does the existence of monopsony power count. A good way to think about it is to consider the Kodak tying case of the early 90s. In that case the buyers were arguably “locked in.” The Court stressed switching costs and information costs as the causes of the lock in. But what happens if you lock yourself in? That is, before signing on the dotted line or making a significant investment in productive facilities, you know that there are only one or a few buyers in the market. This characterizes many of the instances in which sellers of agricultural commodities find themselves selling to those with monopsony power and the buying power they contend with can be viewed as something opted into.