Saturday, April 24, 2021

So much for the competitive marketplace [it took a woman to call the bluff]

Zachary D. Carter, The Woman Who Shattered the Myth of the Free Market, NYTimes, April 24, 2021.

Back in the old days, before World War II:

Marshallian economics was a realm of beautiful symmetries. Supply and demand naturally reached an equilibrium, and workers were paid the precise value of what they contributed to production. So long as companies had to compete on the price and quality of their goods, consumers could force producers to make improvements by purchasing cheaper, superior goods from their competitors. The market would respond to consumers and the wealth of society would increase.

The snake to this Eden was monopoly. If a single producer captured enough market share, it could immunize itself from competition and force consumers to respond to its preferences — higher prices, inferior quality, suppressed innovation. Marshall recognized that most markets were not perfectly competitive. But like other thinkers of his day, he believed that these were passing flaws and that markets had a natural tendency toward competition. The market was almost always improving itself of its own accord; only conditions of pure monopoly could impede this progressive trend.

Robinson turned Marshall’s framework on its head. Competition, she argued in her landmark 1933 book, “The Economics of Imperfect Competition,” wasn’t an on-off switch between pure monopoly and pure competition. A competitive market was not the normal state of affairs — it was a rare “special case.” Markets typically reached a state of “equilibrium” in which Marshall’s progressive improvements halted while exhibiting many of the flaws of a monopoly regime. [...]

The most potent arrow in Robinson’s conceptual quiver was a new idea she called “monopsony.” A monopoly had always been understood to involve a single seller forcing its prices on powerless buyers, like the U.S. oil industry at the turn of the century. But buyers, Robinson observed, could enjoy the forbidden fruits of imperfect competition as well: If only one buyer for a good existed, then that buyer could dictate its price, no matter how many sellers might be competing for its purchases. This was monopsony.

Crucially, Robinson argued that workers, as sellers of their own labor, almost always faced monopsonistic exploitation from employers, the buyers of their labor. This technical point had a political edge: According to Robinson, workers were being chronically underpaid, even by the standards of fairness devised by the high priests of the free market.

There's more at the link.

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