I think an important question to ask is "how is the firm sustaining the monopoly?" If it is because of continued innovation combined with economies of scale - ✅
If it is due to the restriction of market entry via lobbying and nefarious creation of entry barriers you are in trouble.
As always, "compared to what"? Nothing in the universe is perfectly efficient. The critics of capitalism always seem to prefer alternatives that are clearly worse.
I join in every respect, and I would like to add a testimonial to Wegmans. My most pleasant memory of the state of New Hampshire, apart from a few idyllic early autumn weeks on Lake Winnipesaukee, is a Wegmans Grocery with a "ten items or fewer" line.
That isn't a typo. Not "ten items or less." Good for them.
One question. You write, "Monopsony allows firms to realize economies of scale; economies of scale raise worker productivity; and higher worker productivity allows better pay and working conditions."
I don't quite get it. How does monopsony allow firms to realize economies of scale? Like you, I don't worry about monopsony and you give the reason later in your post. Indeed, I wrote a 4-part blog post about it on EconLog some years ago, taking on the CEA under Obama. But I would like an explanation of the above quote. I know you won't provide it. I'm wondering if someone else will.
Sam Walton approached a small American manufacturer in the 1980s who was close to out of business.
The small business couldn’t compete on a small scale so Walton said what if Walmart buys 100,000 units.
Thanks to the sheer scale of the order, this company was able to produce high-quality, American-made flannel shirts at a cost that allowed Walmart to sell them at their famous low prices while still turning a profit. The deal saved and created numerous manufacturing jobs in a small Arkansas town.
Walton used this exact story in Made in America to prove his thesis: if a retailer and a domestic manufacturer partner together transparently and utilize high-volume forecasting, American factories can out-compete foreign imports.
Wouldnt Walmart be a good example of a monopsony—or nearly so?
Because Walmart controls such a massive share of the retail market, many suppliers have no choice but to sell through them to survive. This gives Walmart immense buyer leverage.
Walmart famously dictates the prices it is willing to pay manufacturers (like consumer goods giants or local toy makers). If a supplier refuses Walmart's price, they lose access to shelf space in thousands of stores, which could bankrupt them.
To meet Walmart’s massive volume demands at such low prices, suppliers are forced to scale up their own production. Walmart then reaps the benefits of these cheaper, high-volume goods.
I think an important question to ask is "how is the firm sustaining the monopoly?" If it is because of continued innovation combined with economies of scale - ✅
If it is due to the restriction of market entry via lobbying and nefarious creation of entry barriers you are in trouble.
As always, "compared to what"? Nothing in the universe is perfectly efficient. The critics of capitalism always seem to prefer alternatives that are clearly worse.
anyone who hates business should try running one
I join in every respect, and I would like to add a testimonial to Wegmans. My most pleasant memory of the state of New Hampshire, apart from a few idyllic early autumn weeks on Lake Winnipesaukee, is a Wegmans Grocery with a "ten items or fewer" line.
That isn't a typo. Not "ten items or less." Good for them.
Excellent post.
One question. You write, "Monopsony allows firms to realize economies of scale; economies of scale raise worker productivity; and higher worker productivity allows better pay and working conditions."
I don't quite get it. How does monopsony allow firms to realize economies of scale? Like you, I don't worry about monopsony and you give the reason later in your post. Indeed, I wrote a 4-part blog post about it on EconLog some years ago, taking on the CEA under Obama. But I would like an explanation of the above quote. I know you won't provide it. I'm wondering if someone else will.
Sam Walton approached a small American manufacturer in the 1980s who was close to out of business.
The small business couldn’t compete on a small scale so Walton said what if Walmart buys 100,000 units.
Thanks to the sheer scale of the order, this company was able to produce high-quality, American-made flannel shirts at a cost that allowed Walmart to sell them at their famous low prices while still turning a profit. The deal saved and created numerous manufacturing jobs in a small Arkansas town.
Walton used this exact story in Made in America to prove his thesis: if a retailer and a domestic manufacturer partner together transparently and utilize high-volume forecasting, American factories can out-compete foreign imports.
David,
Wouldnt Walmart be a good example of a monopsony—or nearly so?
Because Walmart controls such a massive share of the retail market, many suppliers have no choice but to sell through them to survive. This gives Walmart immense buyer leverage.
Walmart famously dictates the prices it is willing to pay manufacturers (like consumer goods giants or local toy makers). If a supplier refuses Walmart's price, they lose access to shelf space in thousands of stores, which could bankrupt them.
To meet Walmart’s massive volume demands at such low prices, suppliers are forced to scale up their own production. Walmart then reaps the benefits of these cheaper, high-volume goods.
Thanks. Yes, that could be a good example. I wonder if this is the kind of thing Bryan has in mind.