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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 36, No. 2, pp.221-232
ISSN: 1225-0279 (Print)
Print publication date 31 May 2023
Received 29 Jan 2023 Revised 14 Apr 2023 Accepted 18 Apr 2023
DOI: https://doi.org/10.22904/sje.2023.36.2.003

Monopsony, Price Squeezing, and Sub-optimality

Sangin Park
Sangin Park, Professor, Graduate School of Public Administration, Seoul National University, Korea, Seoul, 1 Gwanak-ro, Gwanak-ku, Seoul, 08826, Tel: +82-2-880-5623, Fax: +82-2-880-5652 sanpark@snu.ac.kr

JEL Classification: D43; D23; L12

Abstract

Monopsony has been a hot issue recently. A traditional view is that monopsony is harmless to consumers unless it results in higher prices downstream. In this study, I present a theoretical model in which the monopsonist may engage in price squeezing but cannot commit not to engage in advance. This lack of commitment (holdup problem) leads to two types of sub-optimality: (i) the monopsony reduces intermediate-good producers’ incentive for relationship-specific investments, leading to sub-optimal investments and lowered wages, and (ii) the monopsonist may choose vertical over-integration.

Keywords:

Monopsony, Price Squeezing, Sub-optimal Investments, Vertical Over-integration

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