The exercise of monopsony in labor markets is limited to one degree or another by public policy. Employer conduct aimed at creating monopsony power is governed by the Sherman Act of 1890, which forbids collusion among employers as well as competitively unreasonable conduct by a single employer.

This chapter discusses private suits and the prohibition of §1 and the sanctions for violations. Corporations are subject to fines while individuals may be fined and/or imprisoned. Section 1 forbids collusive restraints of trade. In the past, there was some confusion regarding the applicability of §1 to labor markets. These days are gone. The Department of Justice and Federal Trade Commission have issued their Antitrust Guidance for Human Resource Professionals in which the agencies make it crystal clear that they will pursue criminal convictions for collusion in labor markets. In addition to public sanctions, §4 of the Clayton Act provides a private right of action for antitrust victims.

Mergers that involve issues of monopsony are addressed in this chapter. In some cases, a merger may be procompetitive or competitively neutral. In others, however, a merger may be anticompetitive and, therefore, should be barred. Horizontal mergers combine two (or more) firms that operate in the same output market. Since they employ similar workers, the merger may create monopsony power. Antitrust policy regarding horizontal mergers is provided by §7 of the Clayton Act and its judicial interpretation. Typically, the focus is on concentration in the output market, but there has been some recent recognition that a merger may have ill effects in the labor market. We examine this recent concern and provide some examples.

In this chapter, we turn our attention to labor unions and their role in providing countervailing power. Congress recognized the consequences of individual employees having to negotiate with large employers. For the most part, individual employees have no bargaining power and face all-or-nothing offers that reflect monopsony power. Consequently, Congress passed legislation that would permit employees to unionize and thereby create a labor monopoly. The idea was to level the playing field so workers could not be abused. This chapter provides a brief review of the statutes and the scope of the labor exemption.

The formation of a union converts a monopsony into a bilateral monopoly. The economic effects of a bilateral monopoly are generally positive. Employment and output expand. Thus, both employees and consumers are better off. We explain this analysis and illustrate it with reference to professional sports. This chapter also explores the antitrust conundrum arising from bilateral monopoly.

This chapter provides an overview of the antitrust laws. We begin with some historical background and move on to explore the economic rationale for having a public policy that protects and promotes competition. The pertinent sections of the Sherman Act, the Clayton Act, and the Federal Trade Commission Act are presented, and their coverage is explained briefly. The importance of both public and private enforcement efforts is discussed.

In this chapter, we review the tools and tactics competition authorities use to evaluate the competitive consequences of mergers using various examples. Merger policy in the United States is governed by Section 7 of the Clayton Act, which forbids mergers that are apt to impair competition or tend to create a monopoly. Since Section 7 is a preventive – rather than a remedial – provision, the antitrust Agencies need not demonstrate actual harm. The Agencies need only prove that the adverse effects are likely to accompany that merger. A careful review of the change in the market structure before and after the proposed merger is often employed to determine the likelihood of an adverse effect. We illustrate the Agencies’ methodology by looking at mergers of health insurers, physician groups, and pharmaceutical companies.

The application of the national antitrust laws to the activites of labor unions had been controversial almost from the beginning, and the controversy continued when the Department of Justice under Thurman Arnold used the antitrust laws to attack unions that used jurisdictional disputes with other unions as a vehicle to preserve their dominant position in construction labor markets. Felix Frankfurter wrote the Court’s opinion “integrating” the sttutes regulating labor unions and monopolies to cut back on Arnold’s campaign.