Monopsony: Antitrust Law and Economics.

Monopsony: Antitrust Law and Economics is a book which can serve as a reference, a teaching text at the advanced undergraduate and graduate levels, as well as a lucid explanation of this theoretical and legal construct for the economics readers. Written jointly by Roger D. Blair, Professor of Economics, and Jeffrey L. Harrison, Professor of Law, both at the University of Florida, the book tackles economic and legal issues relating to buyers' power. It is easy to read and is well organized into eight chapters, the first of which is introductory providing interesting examples of buyers' power. The diverse anecdotes range in topics from bid rigging at antique auctions to information sharing at treasury auctions.

In chapter 2, antitrust laws are examined to lay the groundwork for the analysis of monopsony. The authors tell us that sections of the Sherman Act which deal with restraint of trade and attempts to monopolize and sections of the Clayton Act which deal with the prohibition of price discrimination, prohibition of tying and exclusive dealing arrangements, and prohibition of mergers are the main laws which can be used by courts to attack monopsony power. In addition, the authors point out that from the standpoint of economic efficiency, a "purpose"-oriented classification is in order, whereby cases are classified as either unilateral or as collusive use of buying power.

Chapter 3, which changes the tone from the legal aspect to the economic aspect, focuses on the economic theory of monopsony, providing a simple model which incorporates considerations for the social welfare and output price effects. The special case of collusion among buyers is also addressed. An important feature of this chapter is the provision of the Buying Power Index (BPI) by which a determination of buyers' power can be made, which is analogous to indexes of sellers' power. Because the situation of a pure monopsonist is seldom encountered in practice, the index is derived from the viewpoint of a dominant purchaser. Three ingredients are necessary for the calculation of BPI: the dominant buyer's market share, the overall elasticity of supply, and the elasticity of demand of the fringe buyers. The authors argue that the inclusion of the elasticities in the BPI is far superior to the use of 35 percent market share practiced by the Antitrust Division as a guide in determining buyers' power. Even though the estimation of the three components may be difficult, they show that reasonable estimates are possible.

The thrust of chapter 4 is the use of antitrust tools, namely, the specific sections of the Clayton and Sherman Acts developed in chapter 2 in monopsony and collusive monopsony as found in court opinions. The discussion touches broadly on monopsonization and monopsonistic abuses in which case a group of firms may use their buying power to influence terms of exchange other than price. The authors also take note of situations which involve mergers and price discrimination. The analysis is interspersed with law and economics. The authors find, perhaps surprisingly, that most court decisions in the sample of cases they considered were consistent with the promotion of consumer welfare, taking into account that many of the cases were decided before economic reasoning became important when dealing with antitrust.

An important part of the book is chapter 5. This is especially so because the topical area is concerned with cooperative buying. In general, cooperative buying is viewed as desirable. However, when one looks deeper into the matter, one may find some such practices to be contrary to the general welfare, and in reality are similar to collusive monopsony. Two common types of buyers' cooperatives were discussed. The first, buyer cooperation, entails the buyers requiring product standardization. The second is a buying cooperative, which entails buyers joining together to make purchases. For both types, relevant economics and antitrust laws were discussed. On the economics side of the analysis, the authors provide the necessary modelling to explain three consequent outcomes of joint purchasing. They are (1) efficiency enhancing; (2) efficiency enhancing with increased buying power; and (3) welfare trade-offs with increased efficiency and increased buying power. Therefore, the per se standard which considers buying agreement unlawful may not be appropriate. The authors propose the employment of what they term ancillary restraint analysis to test whether cooperative buying (horizonal restraints) is harmful to the common good. The test is summarized as:

1. the horizontal agreement is necessary to achieve some productive efficiency;

2. a price agreement is required to achieve the claimed efficiency; and

3. the exertion of monopsonistic buying power to force prices below market levels is required to achieve the procompetitive efficiencies.

In contrast, the focus of chapter 6 is a discussion of the often forwarded defense of monopsony as providing a countervailing market power. Thus, collusion among buyers may be justified when they encounter a monopolist seller. To this end, the authors provide three instances where court decisions found such practices not unlawful. The authors then go on to illustrate a simple bilateral monopoly model in which case a monopolist of a well-defined product faces a monopsonist with a conclusion that in some instances collusive monopsony may be beneficial by promoting economic efficiency.

Chapter 7 turns the attention to antitrust enforcement of monopsony. The authors explain that the enforcement of laws are conducted by a mixture of federal agencies, attorneys general of states and private plaintiffs. The book concludes with a short chapter which summarizes the preceding seven chapters.

This volume presents a concise and well-organized treatment of monopsony and the authors should be complimented for a job well done. They provide a rigorous economic analysis and impressive collection of specific legal cases to demonstrate the linkages between economics and law.

Edward Nissan The University of Southern Mississippi