298 Reading: Price Setters on the Supply Side
Price Setters on the Supply Side
Buyers are not the only agents capable of exercising market power in factor-pricing choices. Suppliers of factor services can exercise market power and act as price setters themselves in two ways. First, a supplier may be a monopoly or have a degree of monopoly power in the supply of a factor. In that case, economists analyze the firm’s choices as they would analyze those of any other imperfectly competitive firm. Second, individual suppliers of a factor of production may band together in an association to gain clout in the marketplace. Farmers, for example, often join forces to offset what they perceive as unfair market power on the part of buyers of their products. Workers may join together in a union in order to enhance their bargaining power with their employers. Each case is discussed below.
Monopoly Suppliers
A firm with monopoly power over a particular factor can be expected to behave like any other monopoly. It will choose its output where the marginal revenue and marginal cost curves intersect and charge a price taken from its demand curve. A monopoly supplier of a factor faces a demand curve that represents the MRP of the factor. This situation is illustrated in Figure 14.6. The firm will charge a price Pm equal to the MRP of the factor and sell Qm units of the factor.
Unions
A labor union is an organization of workers that negotiates with employers over wages and working conditions. A labor union seeks to change the balance of power between employers and workers by requiring employers to deal with workers collectively, rather than as individuals. Thus, negotiations between unions and firms are sometimes called collective bargaining.
The subject of labor unions can be controversial. Supporters of labor unions view them as the workers’ primary line of defense against efforts by profit-seeking firms to hold down wages. Critics of labor unions view them as having a tendency to grab as much as they can in the short term, even if it means injuring workers in the long run by driving firms into bankruptcy or by blocking the new technologies and production methods that lead to economic growth. We will start with some facts about union membership in the United States.
FACTS ABOUT UNION MEMBERSHIP AND PAY
According to the U.S. Bureau of Labor and Statistics, about 11.3% of all U.S. workers belong to unions. Following are some of the facts provided by the bureau for 2013:
- 12.0% of U.S. male workers belong to unions; 10.5% of female workers do
- 11.1% of white workers, 13.4 % of black workers, and 9.8 % of Hispanic workers belong to unions
- 12.5% of full-time workers and 6.0% of part-time workers are union members
- 4.2% of workers ages 16–24 belong to unions, as do 14% of workers ages 45-54
- Occupations in which relatively high percentages of workers belong to unions are the federal government (26.9% belong to a union), state government (31.3%), local government (41