The Economic Libertarian

Monopsony, as covered in my last post, is the state of having only one buyers for a very commonly produced product. Oligopsony is the state of having very few buyers for a very commonly produced product. Oligopsonic labor markets (or those in which many wish to provide labor but few wish to buy it) most commonly occurs when there are only a few huge corporations employ the majority of the workforce.

In this situation, the price of labour rapidly drops to its cost as competition for jobs heats up among workers. The cost of unskilled labour is subsistence. The cost of skilled labour is subsistence plus training. In the short run, skilled labour can cost subsistence, but few workers will pay for training themselves if it is unprofitable. Eventually this situation requires sponsorship of training so the cost of trained labor will in an oligopsonic market tend towards subsistence plus training.

Under the conditions outlined the economy as a whole is a great construct that cares not a whit for happy workers. Some businesses may try to improve the community for any of various reasons. By and large though, when oligopsonic competition for labour exists, people are absolutely miserable, and all the fruits of labour go to capital. I sound like a Marxist, don’t I?

I do. Indeed, I have studied communist theory. I’m not a communist though.

Here’s where it gets interesting. Workers in such a situation often form labour unions and try to restrict companies to using only union labour. They try to set up oligopolistic (few sources of supply) competition for labour. They try to reduce the market to a Dualistic system. Dualistic systems are indeed more likely to reach equitable agreements than either monopsonist or monopolist systems. On the other hand, dualist systems can also create economic deadlock if the supplier and purchaser fail to agree on a result.

The deadlocked situation in this case is a strike.

There’s an alternate mechanism than regressing from normal competition, to monopsonist competition, to dualistic competition. It is not instating the union beforehand, as the union creates oligopolistic competition. Oligopolistic competition doesn’t care about maximum utilization of resources (labour) but only maximum profits for resources utilized (wages). Oligopolistic competition over labour drives up wages but creates serious unemployment.

Those who win, win a lot. Those who lose, don’t even get subsistence.

The right alternate mechanism is instead to pursue pro-growth policies, make it easy to start up businesses, and withhold government assistance for problems. People will stand together and solve their own problems if the tools are available to do it and the need to do it is present. As it is, we often show little concern for them. The government continues to use overbearing regulations on behalf of the established companies and workers continue trying to form unions on behalf of themselves. Both of these efforts seek privelege for the priveleged at the expense of the poor and unemployed.

Compassion doesn’t work like that. It’s time for the government to back off.

Edit: The current date is December 6th, 2007. I have editted this post to be more economically accurate.

A brief explanation of various conditions which can arise in a capitalist market or mixed market:

Monopsonic Competition

When there is only one buyer but many sellers, prices rapidly drop to exactly production costs. Supply growth stops immediately. Unless more buyers are enticed to enter the market by the low prices, rabid competition for the only purchaser will gradually force sellers to go out of business until only one remains. When there are many sellers and a few buyers, this is oligopsonic competition instead of monopsonic.

Monopolist Competition

When there is only one seller but many buyers, prices rapidly rise to the maximum profit point. Supply growth slows to a near-stop. If barriers to entry are low then monopolies are unsustainable and will self-correct as new businesses seek to produce for the high profits, thus increasing supply growth and forcing the profit point for the industry back down. If barriers to entry are high then competition arises only in extreme cases and not before the monopolist has already pulled excessive profits out of their arrangement. When there are many buyers and a few sellers, this is oligopolistic competition instead of monopolistic.

Dualist Competition

When there is only one buyer and only one seller, price points will depend upon negotiations within the two. If negotiations find in favor of the buyer, more buyers may choose to enter the market. If negotiations find in favor of the seller, more sellers may choose to enter the market. Dualistic conditions do not tend to self-correct due to loyalty between buyer and seller, binding contractual obligations, and other problems. Dualistic conditions typically only self-correct when more buyers and sellers enter the market simultaneously, as typically only happens when .

Normal Competition

When there are many buyers and many sellers, prices move to the point that “clears the market” – selling all available supply. Supply growth moves at a rate determined by profit point, rising faster whenever more can be profitably produced. Supply growth gradually slows as prices approach production costs.

Perfect Competition

A perfect market isn’t literally perfect or utopian, it’s an economics term referring to a state of competition whereby very low barriers to entry and ready availability of capital cause a sector to be very response to changes in the economy. Supply moves with demand and profit points precisely represent the availability of capital in a perfect market.