Word of the year: monopsony

PIRC recently held an ESG webinar focusing on the issues of industry and ownership concentration, and the questions that this might pose for investors. We are continuing to dig into the topic on behalf of our clients. But in the meantime we thought it useful to flag the issue of monopsony.
Much of the emphasis in the literature on concentration relates to monopoly, where a dominant firm, or firms, has market power and can therefore have significant influence over prices. However, firms in concentrated industries might exert as much power as price-takers as price-makers. A single buyer is a monopsony. This is often understood as the pressure that firms can put on suppliers of goods. Certainly where there is a limited number of buyers of goods they have significant bargaining power versus their suppliers. Think of the complaints often heard from food producers about supermarkets.
But firms are also buyers of labour. Therefore, dominant players in concentrated markets are likely to be able to put downward pressure on employee terms and conditions.
Here it is worth considering the question of the national versus regional picture. Across an industry one firm might only account for a limited share of employment, but at a regional or local level it might be a dominant employer. A firm might place a production or distribution centre in an area where jobs are (or were) scarce. On the plus side this creates jobs, but it also gives the company a very strong bargaining positions versus employees.
This also overlaps with ownership concentration, particularly across industries. In our experience, investor interest in the S in ESG, and workplace issues in particular, is weak and some are hostile to trade unions. In addition, the voting records of asset managers show that the large majority oppose shareholder resolutions that might give employees a greater voice at work, such as through board representation. There is a risk therefore that common ownership by investors who are not supportive of labour across employers who are already able to utilise monopsony power to keep wages down will be a particularly toxic mix for workers.
Something to keep an eye on.

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