An abstract of my research project: or what Monopsony is.

Almost 10 months later after I started my "Norwegian adventure" I can say that things are still going the right way. I love the city of Bergen, always rainy, cold summers (freezing cold), very green and flowery. The food in general terms is excellent (particularly the fish), I have learnt how to prepare sushi and Gordon Ramsay has become my best friend.

"Summer time" in Bergen, eh?

Also I have met a great group of people, colleagues, new friends, and even cats! Soon a cat will be moving in to our flat, so that I am a bit scared of how that will turn out, but also looking forward to it. And more importantly, the research project is going well on its way.

Who will win the battle? She or me?

The research project

Anyway, back on track, I have been working this past weekend on writing a one page abstract on my research project and here it is:

Title: “The Regulation of Monopsony and Buyer Power of contracting authorities subject to Public Procurement Law of the EU and EEA”.

Author: Ignacio Herrera-Anchustegui

Institution: University of Bergen-BECCLE

ABSTRACT

This research project analyzes the concept, economic consequences and legal regulation of monopsony and buyer power in a public procurement law setting. The exercise of monopsony and/or buyer power by contracting authorities during a tender procedure will be the subject of study as well as it will be discussed whether either public procurement and/or competition law are the appropriate legislative tools to regulate them. This research project will analyze this phenomenon from an EU-EEA perspective, with a strong emphasis on supranational case law and legislation. Reference to national case law and legislation will be made for illustrative references.

The main research question of this project states: Is the purchasing/monopsony power of contracting authorities regulated by competition and/or public procurement law? If so, how and to what extent? It is envisaged that in order to answer this query several aspects require of clarification. Some of these are: i) What is the impact economic impact of monopsony and buyer power to society? Is it beneficial or detrimental? Or both?; ii) What is the relationship between competition and public procurement law in connection to buyer’s activities?; iii) Up to what extent does competition law apply to contracting authorities part of a public procurement procedure?; iv) In a public procurement procedure, should competition law regulate monopsony and/or buyer power or should public procurement law be the appropriate tool for such a task?; and v) What are the legal and economic consequences of the creation of central purchasing bodies in the light of article 106 of the TFEU?

In sum, the research project will be focused on the legal aspects and developments of the figures of monopsony and buyer power. An appraisal of their legal treatment in an EU-EEA level will be made by means of analysis of the judicial and administrative decisions of supranational and national bodies, thus providing the reader with a de lege lata analysis. In addition, suggestions de lege ferenda will be made in connection with the suggested treatment of the phenomenon subject of study.

Monopsony

So, if you are still here reading this, let me explain a bit what monopsony is. Monopsony, in simple terms, is the situation that arises when there are many sellers but only one buyer. Think of an "inverted monopoly" and you will understand it. Economic theory says that monopsony, when exercised by an entity, will produce effects that are similar to monopoly and will reduce society's welfare by reducing the quantity purchased and therefore reducing prices of goods/services offered by the seller. This means that the monopsonist will buy less so that the seller is obliged to offer the goods at a cheaper price. This is bad because: i) the monopsonist will "take away" the benefits given by the reduction in price; ii) the reduction in price will not be passed on to end-consumers (you and I); iii) the production levels are not optimal and there are resources not being used (think of industrial capacity being wasted); iv) this strategy can force sellers to leave the market (reducing competition) or simply going bankrupt... you name it, it sounds pretty frightening to me!

 

A monopsony chart showing the deadweight loss produced by the reduction in price and quantity.

The project then will analyze how the problem of both monopsony and buyer power (it is similar, but in this case there are several buyers and one of them is strong enough to dictate prices of goods to sellers) is regulated in the case of purchases by the State (or public procurement). Basically the question is: Is buyer power by public entities good or bad for society and how should it be regulated?

About Snowden

Lastly, about Snowden, do not worry. I will keep updating what happens with him, but so far it seems that he will not be travelling (at least anytime soon) to Latin-American (as somewhat anticipated by me). Past Friday he stated: 

"I announce today my formal acceptance of all offers of support or asylum I have been extended and all others that may be offered in the future. With, for example, the grant of asylum provided by Venezuela’s President Maduro, my asylee status is now formal, and no state has a basis by which to limit or interfere with my right to enjoy that asylum." (http://wikileaks.org/Statement-by-Edward-Snowden-to.html)

However, contacts between the US and Russia have been strong this weekend and Russia has somewhat offered to Snowden the right to be in Russian territory, but under the premises of not harming the US-Russian relations... God knows what that means and what does it imply.

Thus, it remains to be seen what will happen with him...