Recently, cable television giant Comcast announced that it was going to acquire rival Time Warner Cable. Aside from the collective groan of a populace already discouraged by poor customer service, this publicized acquisition has reintroduced a virtually unknown term into the daily lexicon: monopsony.
A monopsony is the close cousin to a monopoly. As journalist David Ingram points out, “A monopoly is one seller with many buyers, while a monopsony is one buyer with many sellers. A textbook example is a milk processer that is the only option for dairy farmers to sell to, and that then forces farmers to sell for less.”
While monopolies are generally viewed as being bad because they raise prices, monopsonies are viewed as being bad if they decrease output, thereby slowing down the economy. The effects may already be developing. On Sunday, it was announced that Netflix and Comcast had reached a deal where Netflix will actually pay Comcast to be able to obtain more bandwidth. While Netflix can afford to do this, what will happen when all content providers are expected to pay to be able to put content on the Internet?
Be sure to incorporate “monopsony” into your daily business discussions.