Skip to content

“Looking at the Monopsony in the Mirror”

2012 June 30
by Phil Miller

Although still a distant second to monopoly, buyer power and monopsony are hot topics in the antitrust community. Despite the increasing interest in monopsony and buyer power, relatively few cases have actually been brought. Given the relatively few antitrust cases, the legal standards for monopsony claims are less developed than for monopoly claims. In recent years, courts, competition agencies, and scholars in addressing monopsony begin with a simple premise: monopsony is the mirror image of monopoly. But as this Article contends, courts and agencies should be careful when importing monopolization standards for monopsony cases. What works for monopolization claims may not necessarily work for monopsony claims.

This Article discusses two key issues: first, how much market share must defendant possess to be a monopsony? If courts and agencies assume that monopsony is the mirror image of monopoly, should the agencies and courts use the same market share thresholds for monopsonization claims as in monopolization claims? Second, should agencies and courts use consumer harm as a threshold screen for monopsony claims?

That’s the abstract to a working paper by Maurice Stucke of the University of Tennessee College of Law entitled “Looking at the Monopsony in the Mirror” (via Glenn Reynolds).  That’s an interesting title to me because the textbook economic theory of monopsony is a mirror image of the textbook theory of monopoly.

The economic theory of monopsony is important in understanding the labor markets for sports talent.  Every major league, at one time or another, has employed monposonistic practices.  Player drafts, baseball’s reserve clause, and the NFL’s Rozelle rule are all examples of practices meant to reduce competition between league members in the market for talent.

The practices are not just relegated to the pros either.  NCAA schools have transfer rules that limit the ability of players to go between schools.  FBS football players, for example, must sit out a year when they transfer to another FBS school.  The Big XII further restricts movement between member schools by requiring football players to sit out two years if a player transfers from one Big XII program to another.

A big reason, perhaps the primary reason, for the existence of monopsony in sports leagues is the fact that particular talents, such as hitting in baseball and blocking in football, don’t translate well into other sports at the major league level.  NFL talent is more/less NFL-specific.  NBA talent is more/less NBA-specific.  Yes there are examples of players who have/had the tools to excel at multiple sports (see Dave Winfield and Bo Jackson, for example), but those are the outliers.  So sports leagues only need to limit competition between league members to monopsonize their respective labor markets.

Legal scholars interested in examining monopsony may find useful court cases involving players and their clubs/leagues, such as the famous Curt Flood case or the George Toolson case.  Insights might also be gained into looking at economic papers on monospony, such as Gerald Scully’s famous study “Pay and Performance in Major League Baseball”.  Scully was the first person, to my knowledge, to estimate the effect that monopsony had on a market.

It’s important to keep in mind that a sports labor market is not a representative market in the US economy and research results may not generalize.  But examining sports labor markets and cases involving them may yield clues to further understanding the nuances of monopsony markets.

Comments are closed.