What is a monopsony and why does the government care so much? : The Indicator from Planet Money For decades, antitrust agencies focused on the harm to consumers. But lately, the federal government has started paying more attention to anticompetitive behavior when it comes to workers. Could this be a major turning point for antitrust enforcement?

For more on monopsony, check out the paper referenced in the show: Monopsony in Labor Markets: A Meta-Analysis.

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Are we entering a new dawn for antitrust enforcement?

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WOODS: Penguin Random House and Simon & Schuster - these are two of the world's largest publishers.

BRITTANY CRONIN, BYLINE: They're basically the Godzilla and King Kong of publishing. Only now, Godzilla is trying to eat Kong.

WOODS: That's right. Penguin Random House wants to buy Simon & Schuster for more than $2 billion.

CRONIN: But not if the Department of Justice has anything to do with it. In November, the DOJ filed a lawsuit to block the merger, and not for the reasons you might think.

WOODS: For decades, antitrust regulators, whose job it is to promote competition in the economy - these people have been laser-focused on the consumer. As long as consumers aren't hurt, just let businesses do their thing.

CRONIN: But what's so interesting about this case is that it's not about the consumers - you know, the readers and how much we pay for books. Instead, the DOJ is worried that if these two major publishers merge, it will cause harm to workers, to the authors. And this focus on harm to workers relates to a concept known as monopsony.


THE MUPPETS: (Singing) Mahna mahna, doo, doo, doo, doo, doo.

CRONIN: Monopsony.


THE MUPPETS: (Singing) Doo, doo, doo, doo.

WOODS: Monopsony.


THE MUPPETS: (Singing) Doo, doo, doo, doo, doo.


CRONIN: And I'm Brittany Cronin. Today on the show - monopoly's less famous cousin, monopsony. She may not have her own board game, but the federal government is starting to take her as seriously as your grandma collecting $200 after passing go.

WOODS: When we come back, what the heck is monopsony, and why the sudden shift in antitrust enforcement?


THE MUPPETS: (Singing) Doo, doo, doo, doo, doo, doo, doo, doo, doo, doo, doo, doo, doo.


CRONIN: The classic example of a monopsony is a coal-mining town. Imagine two mines in town. They compete with each other for workers by offering higher wages. That is, until one day, the two mines decide to merge together.

KATE BAHN: And then once they merge, there's not that competition anymore.

CRONIN: Kate Bahn is the director of labor market policy at the Washington Center for Equitable Growth.

WOODS: Kate says that without competition between these two mines, the workers won't get competitive wages. This newly merged mine will probably pay workers less, and it'll employ fewer workers overall. And this, Kate says, is a monopsony.

BAHN: Monopsony explains any time the labor market is not functioning competitively, so that means that any time that employers do not have to compete with each other in order to hire workers. And when that happens, they will undercut wages.

WOODS: And to understand what this has to do with the Penguin Random House and Simon & Schuster potential deal, we need to know how books get published in the first place. And so for that, we phoned a friend, Kate McKean, who is a literary agent at Howard Morhaim.

KATE MCKEAN: I represent authors to publishers to get them book deals.

CRONIN: Authors send their manuscripts to Kate - maybe sexy vampire thriller or, I don't know, wizards who go to school - and Kate makes a list of editors from different publishers that might want to buy the book.

MCKEAN: And hopefully, one of those editors will read it, love it, think that it's amazing and will sell a billion copies or is the highest piece of art they've ever seen or both, and they make an offer.

CRONIN: The offer is called the advance, and it's essentially the author's wage. So if you think about it, the more people offering to buy your book, the higher offers you're going to get - or at least you've got a better shot at selling your book at all.

WOODS: But what's been happening in publishing is giant consolidations of the major publishing houses. A couple of years ago, there was the Big Six. Then Penguin bought Random House, and the Big Six became the Big Five.

CRONIN: So when Kate heard about Penguin Random House trying to buy Simon & Schuster, she just kind of thought, like...

MCKEAN: Oh, goodness, here we go. Here we go again. If we go from - here, we have the Big Five. We're going to go to the Big Four. And if people get laid off, then there's just fewer editors, fewer humans to make books, fewer books to the consumer.

WOODS: Kate worries that if these two publishers merge, layoffs will happen, and she'll have fewer editors to sell to. In that case, she might not be able to sell as many manuscripts or get a good advance for her authors.

CRONIN: And the Department of Justice agrees with Kate. It's saying, look, we're worried that if Penguin Random House acquires Simon & Schuster, the resulting Godzilla-King Kong mega-publisher will have outsized power to undercut how much authors are paid.

WOODS: In response to the government's lawsuit, Penguin Random House says that competition is intense among publishers, both large and small. And they also say, hey, what about the consumers - like, the readers? You, the Department of Justice, have not alleged that this merger will harm competition in the sale of books. You have not made the case that prices will rise.

CRONIN: And here, Penguin Random House is essentially referring to a 40-year history in antitrust enforcement - one that's focused on consumer welfare. The idea is simple - what's bad for consumers is bad for the economy, and that's where the government should step in. But if, at the end of the day, consumers are not being hurt - well, that's called competition under capitalism, and the government should back off.

WOODS: But economist Kate Bahn says to get a full picture of competition in the economy, we need to look at labor, not just at the consumer side of things. And that's because, she says, not only does monopsony reduce wages, it also hampers overall economic growth.

BAHN: We could perhaps be publishing more books, publishing better quality books. Authors would be earning more money. They'd be contributing to GDP themselves. Like, this is sort of this virtuous cycle, when workers earn more and are working more as well, that it creates economic growth that is sort of broadly shared. And when it is artificially suppressed, it's the opposite. It's sort of a vicious cycle of workers being undercut and having lower levels of employment.

WOODS: Kate says that her organization, the Center for Equitable Growth, published a review of over 50 studies done on monopsony. And this review found that monopsony is widespread across the economy, particularly for nurses and teachers.

CRONIN: Still, there haven't historically been many cases of antitrust agencies going after monopsony.

BAHN: There is not a lot of precedent, and it is hard for antitrust enforcers to go after activities without explicit rule-making guidance or explicit legislation that would direct them to do so.

WOODS: Not a lot of rule-making guidance until last summer...


PRESIDENT JOE BIDEN: Good afternoon.

WOODS: ...When President Biden signed an executive order aimed at promoting competition in the economy, including by tackling monopsony.


BIDEN: And let me be very clear - capitalism without competition isn't capitalism. It's exploitation.

WOODS: And it's not just the president. Top officials from the Federal Trade Commission and the Department of Justice have spoken publicly about monopsony in the last year, and the Supreme Court signaled that it might be willing to take on monopsony cases.

CRONIN: And economist Kate Bahn senses a kind of groundswell emerging that may be more impactful than any one case.

BAHN: Economies, I think, are largely structured based on power. And so people will exploit their power, the degree which they're able to, in order to earn outsized profits or pay executives more, whatever they're going to do with that power. And something like having really public cases or making really public proclamations is a deterrent for folks who might otherwise exercise their power in these really negative ways that harm the economy, harm workers, harm consumers.

WOODS: It's a little late for a deterrence in the proposed merger between Penguin Random House and Simon & Schuster. But academics and policymakers alike seem to be pushing back against this decades-old standard of focusing just on consumers.

CRONIN: So while this may be the first case of monopsony you're hearing about, it probably won't be the last.


THE MUPPETS: (Singing) Mahna mahna. Doo, doo, doo, doo, doo. Mahna mahna. Doo, doo, doo, doo.

WOODS: Before we go, just a quick reminder to take our annual podcast survey. You can find it at npr.org/podcastsurvey. Thanks very much.

This show was produced by Jamila Huxtable with engineering from James Willetts. It was fact-checked by Catherine Yang (ph). Viet Le is our senior producer. Kate Concannon edits the show. And THE INDICATOR is a production of NPR.


THE MUPPETS: Mahna mahna.

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