12/01/2012

MONOPSONY AND OLIGOPSONY

Spanish



 Less than three days after Hurricane Sandy hit the East Coast of the USA, Iain Murray, of the Competitive Enterprise Institute, blamed the resistance of New Yorkers to megastores for the misery they were about to endure. In Forbes.com Magazine he explained that “the negativity of the city to the penetration of Wal-Mart will probably make recovery much more difficult. Mom and Pop stores are simply not capable of doing what the megastores can do in these circumstances.”

Monopoly (from the Greek monos ‘one’ and polein ‘sell’) is a situation in which there is only one seller who possesses great power over the market and excludes all others. For a monopoly to exist the monopolist is the only possible source which the consumer has to buy from. It also used to be defined as market in which there is only one seller.

Monopsony (from the Greek mono ‘only’ and psonios ‘to buy’) is a situation which appears when a market exists for only a single consumer. The consumer, because it is the only one, has a special control over the price of products and the producers have to adapt themselves in some way to the demands of the buyer in matters of price and quantity. This enables the sole consumer to obtain the products from its suppliers at a lower price than would be possible in a competitive market. Clear examples of a monopsony are heavy weaponry or public works in which there is normal competition between producers (tank manufacturers or construction firms), but only one consumer (the State).



The paradox of the megastores


Globalisation is nothing less than accelerated monopolisation of the majority of the economic sectors on a planetary scale. Ten automobile companies dominate 77% of the market, two aeronautical companies (duopoly) concentrate 100% of large aircraft, five operators control 83% of fixed telephones, three sole operators control 77% of mobile telecommunications whilst only three concentrate 65 % of the market for mobiles, ten pharmaceutical companies produce 70% of all drugs sold, four tobacco companies produce 70% of all packeted smoke, only three companies manufacture all the agricultural machinery and equipment.

These positions of monopoly or oligopoly allow them to maintain or even increase prices in conditions of economic crisis. Consumers who are unable to pay their electricity or gas bills, fill their tanks, buy medicine….are simply excluded from the monopoly market.

Paradoxically, the large commercial monopoly chains seem to escape this definition. In contrast to the monopolies, Wal-Mart, Tesco, Carrefour... pride themselves on their low prices. Megastores and their low prices would be palpable evidence of the benefits of private monopolies for consumers and the market.

The reality is more prosaic. We are simply dealing with a lesser known variety of monopoly, the monopsonies, creatures even more dangerous than conventional monopolies.

In North Western Europe more than 70% of all foodstuffs are acquired by 4 or 5 supermarket chains. In Sweden, Ireland and Denmark the figure is more than 80%... In Eastern Europe, between 50 and 60%. In Southern Europe, 30 to 40% (although Spain was already at 65,2% in 2006). The trend is for continuing increases. In all European countries the tendency is towards a handful of large chains that sell everyday products (all the time increasing their ranges of other products such as electronic goods, clothing, pharmaceutical products, toys, books, banking, financial services, insurance…. )

Economies of scale

How are these large retail chains able to offer such large discounts so as to attract customers? Without doubt they are able to keep down costs by the traditional means of economies of scale and technical innovation. In a small traditional business someone has to go around the shelves, and write down on a piece of paper “We need four pots of honey, 12 of yoghurt etc., visit a wholesaler to restock etc. If we multiply this process over hundreds of thousands of shops in the whole country it is clear that the consumer will have to pay more than he has to fork out in modern supermarkets with bar codes and computer networks that automatically record the daily transactions to their purchasing departments.

Just in time

Supermarket chains have perfected their systems so that they hardly need to keep goods in stock which reduces the cost of warehouse space and inventories etc. Orders can be sent automatically to the suppliers and the exact quantities arrive in a question of hours even when they are produced on the other side of the planet.

Aggressive human resources techniques

In a situation of growing unemployment, caused by the same monopsonies dismantling the commercial and industrial fabric in the areas where they operate, the employees of these companies are faced with the option of working for Wal-Mart and accepting their worrying labour conditions or not working at all.

Wal-Mart functions like a sect. You do not go to work for Wal-Mart as an employee but as an ‘associate’. In the weekly ‘Saturday Morning Meeting’, a type of sect mass, expert psychologists brainwash and instil the junk values of Wal-Mart (Wal-Mart culture), with the intention of increasing the productivity of the ‘associates’.

Saving people money so they can live better

The megastore can be compared to a temple where the ‘associates’ act as acolytes at certain rituals to gain consumers. Wal-Mart has created sect training ‘colleges’ for leaders, such as that at Springdale in Arkansas. Amongst the ‘Wal-Mart values’ which are not up for discussion, are the benefits of not being unionised nor having medical insurance. If the wage is not enough to eat on or go to the doctor, then there are food stamps and Medicaid for that.

In the jargon of Wal-Mart’s department of human resources such revealing acronyms as TIPS, Threaten, Intimidate, Promise (Pay), Spy are used to deal with workers who try to bring about protests.

The dangerous power of monopsony


However, the large retail chains have the power to lower their costs in a far more worrying way. The retail monopsonies have converted themselves into a gigantic, dangerous and unavoidable funnel, through which it is obligatory to pass, between suppliers and consumers.

In countries where the great majority of foodstuffs are bought by three big supermarket chains, as in Sweden for example, these chains wield enormous power over the suppliers. A supplier who wants to sell his produce has no choice but to sell it through one of the three chains and the chains ‘compete’ with each other to offer their consumers a lower price than their rivals.

The large supermarket chains no longer rely on the wholesale markets but obtain their supplies directly from the producers, often through informal agreements. Considering that supermarkets can obtain their goods from any part of the world, a supplier who wants to sell in Sweden, the UK or Germany will have to sell through a chain which physically has supermarkets in those countries.

Increasingly, throughout the world, suppliers are only able to reach the consumer through one of the three, four or five dominant supermarket groups.

Wal-Mart has two million employees and there are hundreds of thousands of businesses which depend on their orders to survive. In the USA around three million people have jobs which depend on Wal-Mart, 100 million people enter their shops every week and 200 million subcontracted workers, most of them women, put up with their conditions and pay, day after day, to keep their shelves full.

Its colossal size means that its business decisions have a huge and immediate impact on industry. Toshiba had to withdraw its HD-DVD format because Wal-Mart decided in February 2008 that it would churn out Sony Blu-Ray, and from that moment onwards, would only sell that format in its shops. Musicians, writers and advertisers have to submit to the censorship of Wal-Mart which casts itself in the role of the defender of the American family. A book or a video which dealt with issues related to those in this blog would fall foul of Wal-Mart censorship.

Characteristics of monopsonies


Monopsony allows the supermarkets to impose very favourable conditions on the suppliers.

They can ensure that the supplier bears the cost of the deterioration of unsold products. Traditionally, a small shop that could not sell 20 kilos of apples would have to bear the loss, given that the small business could not return the produce to the farmer or salesman and demand to be refunded. Supermarkets, however, routinely do this and if they are unable to sell a few tons of apples they simply do not pay for them.

They can charge the suppliers for access to their shelves with higher prices for the ends of the aisles or ‘gondolas’ or other desirable positions.

They can unilaterally decide special offers (two for the price of one, special promotions etc.) with the cost being borne by the producer.

They can insist that the suppliers adopt new styles of packaging or other innovations, always at their own cost.

They can get free finance at the cost of their suppliers lengthening the time of payments to 90, 120, 160 days. Negative fondo de maniobra so that all their transactions are carried out with the money of others as if they were a bank.

The ‘waterbed effect’ If a heavy person lies down in the middle of a waterbed the level of the water around the edges rises according to the amount of water displaced .In an analogy of this, if a supplier is forced to accept low prices that would mean losses, so as to get his product into megastores and not lose his quota of the market, he can cover his losses by charging the rest of his clients higher prices.

WalMart has established hundreds of ‘negotiation centres’ throughout the world which only WalMart executives and their suppliers may enter. There they carry out what is known as a reverse auction in which the suppliers compete to offer the lowest price according to a target price fixed by WalMart.

The perverse effects of monopsony


Monopsony falls like a devastating plague on cities and towns.

The concentration of the advanced retail sector takes a concentric and spiral form. When a giant retailer pushes down the prices of its suppliers, it achieves more attractive prices which increase its share of the market. A larger share of the market means a greater power of the monopsony over the suppliers, which find themselves obliged to lower their prices further and so on in an apparently unstoppable cycle, in which the giant converts itself into a veritable leviathan of the market, wielding omnipotent power over consumers and suppliers.

Small suppliers find it very difficult to survive when supermarkets establish themselves around them. The urban centres are being converted into veritable ghost towns with whole streets full of abandoned buildings. The taxes which the shopkeepers used to pay thanks to their business with their clients are now transferred to the pockets of the foreign shareholders and the local councils lose revenue. Something as common as Christmas lights and many public services have had to be cut. The very social life of the citizens is curtailed by the lack of contact between people who now talk to machines to do their shopping.

Whilst the vicious circle of concentration of the retail market advances other changes are taking place outside the supermarkets as a direct result of this concentration. Urban centres, residential zones and villages lose their commercial life. People no longer interact with others in everyday life. Social isolation increases.

Annihilation of diversity




Specialised shops tend to disappear. Supermarkets develop their own specialised lines in books, stationery, electronics, bakery, preserves, butchery.. and the old skills and a growing range of products are irredeemably lost.

In the case of non-comestible goods, supermarkets are capable of offering massive discounts in a limited range, of books for example, (as in the case of the Harry Potter books in the UK which were sold at half their normal price in the principal supermarket chains). Traditional bookshops lose their major lines in popular products in this way, finding their business reduced to less profitable literature which makes it difficult or impossible to survive. Bookshops disappear from the streets, except for one or two national chains and an increasingly reduced group of specialists.

In the USA 90% of the fruit and vegetable varieties which were cultivated in 1800 have disappeared. More than 7000 varieties of apple were grown in the United States in 1800. Today there are less than a hundred (which is still too many for WalMart). The monopsonist mechanism forces the monoculture of a tiny number of plants and animals (increasingly more transgenic) which is leaving humanity without food alternatives in case of plagues or mutations of parasites which could destroy the bulk of the harvests (a few varieties) of key foodstuffs to feed the world population.
 
Exclusion of certain groups

Certain sectors of the population face difficulties in accessing essential goods. Those without cars, the elderly and incapacitated find it difficult or impossible to get to the supermarket and end up depending on what are left of the local shops, paying inflated prices because of the ‘waterbed effect’, owing to the disappearance of local wholesalers or simply because of the loss of sales volume in the local shops, which means that prices have to be relatively high to cover fixed costs. In general this residual retail sector offers a limited range of products and often a total absence of fresh food (the low volume of sales obliges them to concentrate on products with a longer shelf life such as tinned and packaged goods).

Exclusion and ruin of local producers

As the supermarkets have grown in size they have developed global suppliers, breaking the traditional links with suppliers of seasonal products and local foods. This in turn causes ecological degradation and endangers food security.

The megastores offer their products independently of seasonal cycles. The preference for purchases of food from the cheapest supplier in any part of the globe means that the local suppliers, unable to find a market, find themselves out of work and abandon their lands.

The central purchasing offices of the large chains do not want to bother with hundreds of thousands of small suppliers. They prefer to deal with a few sufficiently large suppliers which are capable of supplying a substantial proportion or even the whole of their commercial networks. This means that agricultural practices have to change to adapt to the needs of the supermarkets. Small farmers are cut out of the market and their land is bought up by large food corporations capable of installing the appropriate technology to satisfy the demands of the supermarkets.

Pollution and misuse of resources

The high level of specialisation demanded by the producers is only possible with very restricted ranges of products and with growing levels of chemical and pesticide treatment which has irrecoverable consequences for health and biodiversity.

The insistence of the supermarkets on completely spotless fresh products and on products which look good on the shelves increases the pressure on farmers to use high levels of agrichemicals and sacrifice the part of the crop which fails to reach the required standards.

The distribution systems developed by the supermarkets have also been associated with the enormous increase in the use of packaging, in particular plastics which reduce damage during transport, and in pallets. The growth of the supermarkets has led to increased pressure to use more energy, pollute more and impoverish the soil and the quality of the water etc. just when everyone knows we have to use more sustainable methods!

Exploitation of labour

The pressure on producers and suppliers to keep costs low will never cease whatever improvements in efficiency are made. With the end of guaranteeing access to the shelves of Wal-Mart, Tesco or Carrefour, the producers find themselves forced to evade environmental controls and reduce expenditure on wages to an absolute minimum. Many of the products displayed on the shelves of the megastores are produced in inhuman working conditions even worse than those that existed during the first industrial revolution. Piecework is often supervised by subcontractors who can simply disappear if accused of slavery, abuses, mistreatment or violation of labour rights and reappear immediately under another name to continue supplying the large retailers. The social conditions imposed on the supplier countries encourage repressive regimes.


Wal-Mart CEO’s are true experts in their relations with the Chinese nomenclature, which ensures the maintenance of draconian work conditions in the workshops that provide the products which WalMart proudly displays on its shelves.

Degradation of agriculture

The small and medium sized farmers in general find themselves in a position analogous to the workers in the large plantations. They have few options but to supply one of the large supermarket chains. The continuous pressure to reduce prices often leaves them without any profit, struggling to pay their debts to the banks and working long hours to survive. Some agricultural industries, such as the dairy sector, are particularly susceptible to the pressures imposed by the hypermarkets, they fall into bankruptcy and are replaced by large agribusiness units.

Sustainable small farming businesses are expelled from the market and replaced with an ever declining number of giant companies. Agricultural workers are left without jobs, wages fall and work becomes ever more precarious. Agriculture and processing become more and more industrialised and less adapted to local and environmental conditions. Enormous industrial farms use up the water and destroy soil quality and biodiversity.

The struggle against the megastores

The large retail chains are parasitic organisms capable of thriving during times of depression. More depression means more Wal-Mart, more Carrefour, more Tesco, more Wal-Mart, more Carrefour, more Tesco means more depression.

The survival of businesses in the present climate of crisis depends on their accumulated positions of monopoly. King Capital destroys even the instrument which it had controlled, the market.

As the profits of the large retailers grow, the effects of the exponential circle of monopsonist development are seen to be increasingly damaging. Suppliers, shopkeepers, citizens and governments begin to notice that the changes generated by the cancerous growth of monopsony or oligopsony become more and more undesirable.

The issues, campaigns and legal challenges are not the same in every country. In the USA, for example, the anti-Wal-Mart campaigns have tended to focus on the abuse of labour rights on the part of the megastores.




 WalMart providers

The webpage Wake Up Wal-Mart.com publishes a self defence manual against Wal-Mart, dissuasion tactics, collections of signatures, employee testimonies, etc. Wal-Mart Fight puts forward the ‘real Wal-Mart facts’ to combat the blandishments of the advertising campaigns of the monopsony whilst Wal-Mart Watch follows the crooked activities of the firm.

In India the immediate fear is that megastores will take over and annihilate the enormous informal retail and peddling sector which offers a meagre subsistence for millions of people. Whilst classical economic theory would applaud the reduction of an inefficient workforce of Indian peasants as a positive development, the roots of this theory were laid down at a time when the industrial world was expanding and the workers expelled from one sector could pass to another sector. In the senile stage of capitalism, faced with declining resources and ecological disaster, when workers are expelled from one sector there are not necessarily viable alternatives for finding other work.

In India the workforce numbers 422 million but the formal sector only employs 27 million. In this situation the retail sector is a veritable safety valve employing 40 million Indians in more than 11 million small establishments. The entrance of large retail chains into India would mean a human disaster of incalculable proportions and a real battle has broken out between the forces in favour of penetration (public relations companies financed by WalMart and co) and Indian civil society).

More information on this subject


Wal-mart Dumping (in this blog)

Totnes: the town that declared war on global capitalism

Iain Farquhar: Competition Law and the New Slavery

4 comments:

Orlando said...

Tremendo, pero absolutamente compartible, lamentablemente la realidad es tremenda y nos golpea en la cara a cada instante y apenas nos damos cuenta.Excelente post y blog. Saludos

Anonymous said...

Sigo tu blog desde hace años, y me encanta leerlo.

Soy productor de aceite de oliva de Argentina, y puedo decirte que lo que cuentas del "supermercadismo" es así.

Aquí en Argentina, y puedo dar fe, los supermercados también han impulsado en cierta medida a la inflación, con complicidad de los grandes monopolios alimenticios.

La verdad es que me da un poco de tristeza leer el post, porque vengo a confirmar algo que yo ya sabía, y es doblemente desalentador.

Ojalá las cosas fueran hacia una camino de mejora, pero por ahora no soy optimista al respecto.

Sigue así, que da gusto leerte.

Saludos,

Anonymous said...


Si lo que en se publica en el post:

http://crisiscapitalista.blogspot.de/2012/01/china-y-las-multinacionales.html

fuese cierto, como es posible que China rivalice con USA en los foros mas importantes del gobierno mundial y su moneda cada vez gane mayor peso a la vez que invierte ingentes cantidades de dinero en convertirse una potencia mundial armamentistica y espacial ?

Links said...

¿como es posible que China rivalice con USA en los foros mas importantes del gobierno mundial y su moneda cada vez gane mayor peso a la vez que invierte ingentes cantidades de dinero en convertirse una potencia mundial armamentística y espacial?

China, EEUU y la UE rivalizan entre sí para ganarse el favor de las grandes corporaciones multinacionales, y no lo hacen por los impuestos que puedan recaudar (las multinacionales apenas pagan impuestos). China, como EEUU y la UE, están al servicio de estas grandes corporaciones y la relación no es unívoca. China está más al servicio de multinacionales "no-chinas" que de sus propios grandes conglomerados.

Mira esta entrada:
http://blogs.lclark.edu/hart-landsberg/2012/03/02/china-and-neoliberalism/