Does Monopsony Lead to Lower Prices?
By David Henderson
In an unusually critical and mainly on-target criticism of one commenter’s critiques of Amazon, Tyler Cowen writes:
First, monopsony and monopoly tend to have contrasting or opposite effects. To the extent Amazon is a monopsony, that leads to higher output and lower prices.
The second sentence in the above quote is false. I don’t believe that Amazon is a monopsony but if it were, output would be lower and prices would be higher. That is a well-known result in economics. Indeed, one of my criticisms of David Card’s and Alan Krueger’s book, Myth and Measurement: The New Economics of the Minimum Wage, is that their argument that the minimum wage increase in New Jersey reduced monopsony power in the fast-food labor market is inconsistent with their finding that prices rose more in New Jersey, where the minimum wage increased, than in neighboring Pennsylvania, where it didn’t.