Analysis of Unethical Side Effects of Monopsonies: Can Monopsonies Manipulate the Market Price for the Benefit of a Small Group of Buyers

By Parhizgar, Kamal Dean; Janamanchi, Balaji | Competition Forum, January 1, 2007 | Go to article overview

Analysis of Unethical Side Effects of Monopsonies: Can Monopsonies Manipulate the Market Price for the Benefit of a Small Group of Buyers


Parhizgar, Kamal Dean, Janamanchi, Balaji, Competition Forum


EXECUTIVE SUMMARY

Modern day economies and the authorities regulate marketplace. They appear to be oblivions to the existence of monopsonistic markets. Monopsonistic characteristics of buyer bargaining power is imposed on the inputs of the free market economy. In this paper the ethical issues concerning the existence of high sunk costs for small businesses for entry to the market, concurrent with small number of buyers is examined. Monopsonies, the flip of monopolies, exert direct impact on wage rates. Volatility of pricing systems apparently favors the buyers and fails to protect suppliers' interests. Consequently, it leads businesses to a potential collapse of "competition."

INTRODUCTION

Monopsony is defined as: "A market situation in which the product or service of several sellers is sought by only one buyer" (American Heritage Dictionary). Consumers are unaware of the existence of monopsonists in modern day markets and are paying a hidden price for such ignorance. Monopsonists exist in many areas of international markets in which they can easily establish control by wielding their buyer power over time. The monopsonists that exist in many areas of the international market tend to establish enormous control over market resources by exerting power over time. Once a monopsony establishes a firm control of market segment, it starts demanding lower prices for goods, and the sellers are forced to take whatever is offered to them. Since most of sellers rely on relatively small capital, they have little power over the prices they can establish for the buyers. This makes the buyers build up their own manipulated network so that they can get required for manufacturing their goods with the lowest price for inputs. The survival of sellers depends entirely upon their buyers' purchasing habit, and this eventually leads to buyers resorting to unethical, albeit, legally valid standards.

In this paper, we identify monopsonistic characteristics of buyer bargaining power that imposes on the input of the free market economy. The existence of high sunk costs for small businesses for entry to the market, along with the small numbers of buyers is examined. Monopsony occurs when a single buyer creates a market-distorting power over those who produce the input/ingredients of the final products that the monopsony deals with. Even though, it appears as if acquisition of such power in any major industrial or service sector is illusionary, the current trends in some sectors necessitates a lively debate in both business and government circles as to whether such a situation will be a boon or bane, or neither. One must be appreciative of the fact that morals could start to degrade on both the buyer's and the seller's side, and prompt them to commit acts that are not construed as fair acts or that are morally wrong. But since the sellers as well as the buyer perceive, from their perspective, all these actions as acts in good faith and bona fide for their own benefits, they often overlook the moral and ethical aspects of the marketplace. Society, in general, is responsible in some way for developing the problems that arise when dealing with these types of issues of ethics. Monopsonists know very well what acts can be considered or construed as unethical. However, Phrase Finder, 2007 quoting William Pitt, 1770: "Unlimited power is apt to corrupt the minds of those who possess it." Given me great deal of power that they exert over the sellers, monopsonists are unlikely to give up these unethical acts, and continue to perpetrate them so long as they are not illegal.

UNETHICAL AND IMMORAL ACTS OF MONOPSONISTS

Ethics is concerned with issues of what is just and unjust, fair and unfair, right and wrong and their bearing on societal decisions and actions. We, the people, should be concerned for stakeholders' interest and be responsible for the well-being of our marketplace. Many of us tend to just mink of how we can benefit from others and not think about how our actions can benefit the society at large. …

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