What are the pros and cons of monopolies?

Encyclopedia of Opinion

Question: What are the pros and cons of monopolies?
Position‹2 of 2: Monopolies are damaging to economies
Argument1 of 5›: Monopolies reduce wages for workers

Monopolies or tight oligopolies have pricing power as well as market power, thus giving them the ability to reduce their workers' wages.

The argument

Monopolies or tight oligopolies have "pricing power" according to Warren Buffett. This is well documented in economic literature. What is less understood or considered is that they also have market power over workers. Research by Jose Azar, Marshall Steinbaum and Ioana Marinescu shows that commuting zones that are more concentrated have lower wages. While some monopolies like Google and Facebook may pay workers well, these are the exceptions rather than the rule. Also, monopolies in product markets are often monopsonies in labor markets, i.e. they are only one buyer of labor.

Premises

[P1]Monopolies and tight oligopolies hold not only pricing power over consumers but also market power over workers. [P2] Research shows that more concentrated labour markets have lower wages, because a monopoly in a product market is often the only buyer of labour. [P3] Well-paying monopolies like Google and Facebook are the exception rather than the rule. [C] Therefore, because they reduce workers' wages, monopolies are damaging to economies.

Counter-arguments

Defenders of large firms reply that the wage effect is contested and that concentration does not always mean monopsony. Some economists argue the concentration–wage findings are sensitive to how local labour markets are defined, and that national and online hiring give many workers outside options a commuting-zone measure misses. Large, productive firms — including some of the most concentrated — frequently pay above-market wages and benefits and offer more stable employment, and productivity gains from scale can raise wages economy-wide. They add that monopoly power in product markets is often temporary and contestable, disciplined by entry and antitrust, so labour-market harm is not an inherent, permanent feature of large firms. On this view wage suppression is a risk to police, not proof that monopolies as such are damaging to economies.

Rejecting the premises

[Rejecting P1] The concentration–wage findings are sensitive to how local labour markets are defined; national and online hiring give workers outside options a commuting-zone measure can miss, so concentration does not reliably imply wage suppression. [Rejecting P2] Large, productive firms often pay above-market wages and their scale can raise productivity and wages economy-wide, so market size does not by itself reduce workers' pay. [Rejecting C] Because labour-market power is contestable and disciplined by entry and antitrust, wage suppression is a risk to be policed rather than proof that monopolies as such damage economies.