DARIAN WOODS, HOST:
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WOODS: Penguin Random House and Simon & Schuster – these are two of the biggest publishers in the world.
BRITTANY CRONIN, BYLINE: They’re basically the Godzilla and King Kong of publishing. Only now Godzilla is trying to eat Kong.
WOOD: That’s true. Penguin Random House wants to buy Simon & Schuster for over $2 billion.
CRONIN: But not if the Department of Justice had anything to do with it. In November, the DOJ filed a lawsuit to block the merger, and not for the reasons you might think.
WOODS: For decades antitrust regulators, whose job it is to promote competition in the economy — these people have been consumer-focused. As long as consumers aren’t hurt, just let the companies do their thing.
CRONIN: But what’s so interesting about this business is that it’s not about the consumers – you know, the readers and the price we pay for the books. Instead, the DOJ fears that if these two major publishers merge, it will hurt workers, authors. And this focus on harm to workers is tied to a concept known as monopsony.
(SOUNDTRACK FROM THE SONG, “MAHNA MAHNA”)
THE MUPPETS: (Singing) Mahna mahna, doo, doo, doo, doo, doo.
CRONIN: Monopsony.
(SOUNDTRACK FROM THE SONG, “MAHNA MAHNA”)
THE MUPPETS: (Singing) Doo, doo, doo, doo.
WOODS: Monopsony.
(SOUNDTRACK FROM THE SONG, “MAHNA MAHNA”)
THE MUPPETS: (Singing) Doo, doo, doo, doo, doo.
WOODS: This is THE PLANET MONEY INDICATOR. I am Darian Woods.
CRONIN: And I’m Brittany Cronin. Today on the show – Monopoly’s less famous cousin, Monopsony. She may not have her own board game, but the feds are starting to take her as seriously as your grandma collecting $200 after she dies.
WOODS: When we come back, what is monopsony, and why this sudden change in the application of antitrust laws?
(SOUNDTRACK FROM THE SONG, “MAHNA MAHNA”)
THE MUPPETS: (Singing) Doo, doo, doo, doo, doo, doo, doo, doo, doo, doo, doo, doo, doo.
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CRONIN: The classic example of a monopsony is a mining town. Imagine two mines in town. They compete for workers by offering higher wages. That is to say that one day, the two mines decide to merge.
KATE BAHN: And then once they merge, there’s no longer that competition.
CRONIN: Kate Bahn is director of labor market policy at the Washington Center for Equitable Growth.
WOODS: Kate says that without competition between these two mines, workers won’t get competitive wages. This newly merged mine will likely pay workers less and employ fewer workers overall. And that, says Kate, is monopsony.
BAHN: Monopsony explains whenever the labor market doesn’t operate competitively, which means whenever employers don’t have to compete to hire workers. And when that happens, they will cut wages.
WOODS: And to understand what that has to do with the potential deal between Penguin Random House and Simon & Schuster, we need to know how the books are published in the first place. And so for that, we phoned a friend, Kate McKean, who is a literary agent at Howard Morhaim.
KATE MCKEAN: I represent authors to publishers to get book offers.
CRONIN: The authors send their manuscripts to Kate – maybe a sexy vampire thriller or, I don’t know, wizards going to school – and Kate makes a list of editors from different publishers who might want to buy the book .
MCKEAN: And I hope one of those publishers reads it, likes it, thinks it’s amazing and sells a billion copies or it’s the highest work of art I’ve ever had. he’s ever seen or both, and make an offer.
CRONIN: The offer is called the advance, and it’s basically the author’s salary. So if you think about it, the more people who offer to buy your book, the more high offers you’ll get – or at least you’ll have a better chance of selling your book.
WOODS: But what’s happening in publishing is giant consolidations of major publishing houses. A few years ago there were the Big Six. Then Penguin bought Random House, and the Big Six became the Big Five.
CRONIN: So when Kate heard about Penguin Random House trying to buy Simon & Schuster, she just thought, like…
MCKEAN: Oh, my God, here we are. Here we go again. If we leave here, we have the Big Five. We’re going to the Big Four. And if people are laid off, there are just fewer publishers, fewer humans to make books, fewer books for the consumer.
WOODS: Kate fears that if these two publishers merge, layoffs will occur and she will have fewer publishers to sell to. In this case, she might not be able to sell as many manuscripts or get a good lead for her authors.
CRONIN: And the Department of Justice agrees with Kate. He says, listen, we fear that if Penguin Random House acquires Simon & Schuster, the resulting Godzilla-King Kong mega-publisher will have outsized power to cut authors’ salaries.
WOODS: In response to the government lawsuit, Penguin Random House says competition is intense between publishers big and small. And they also say, hey, what about consumers – like readers? You, the Department of Justice, have not alleged that this merger will harm competition in the sale of books. You haven’t argued that prices will go up.
CRONIN: And here, Penguin Random House is basically referring to a 40-year history in antitrust enforcement — a history focused on consumer welfare. The idea is simple – what’s bad for consumers is bad for the economy, and that’s where the government should step in. But if, in the end, consumers are not harmed – well, that’s called competition under capitalism, and the government should back down.
WOODS: But economist Kate Bahn says that to get the full picture of competition in the economy, we have to look at work, not just the consumer side of things. And that’s because, she says, monopsony not only lowers wages, it also hampers overall economic growth.
BAHN: Maybe we could publish more books, publish better books. Authors would make more money. They themselves would contribute to the GDP. Like, it’s sort of this virtuous circle, when workers earn more and also work more, it creates economic growth that’s kind of broadly shared. And when it’s artificially suppressed, it’s the opposite. It’s kind of a vicious cycle where workers are undervalued and have lower levels of employment.
WOODS: Kate says her organization, the Center for Equitable Growth, has published a review of more than 50 studies done on monopsony. And this study found that monopsony is prevalent across the economy, especially for nurses and teachers.
CRONIN: Still, there haven’t been many cases of antitrust agencies pursuing monopsony.
BAHN: There aren’t many precedents, and it’s difficult for antitrust authorities to pursue activities without explicit rule-making guidelines or explicit legislation that would require them to do so.
WOODS: Not a lot of rule-making advice until last summer…
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PRESIDENT JOE BIDEN: Hello.
WOODS: …When President Biden signed an executive order to promote competition in the economy, including tackling monopsony.
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BIDEN: And let me be very clear – capitalism without competition is not capitalism. It is exploitation.
WOODS: And it’s not just the president. Top Federal Trade Commission and Justice Department officials have spoken publicly about monopsony over the past year, and the Supreme Court has signaled that it may be willing to take on monopsony cases.
CRONIN: And economist Kate Bahn senses the emergence of some kind of groundswell that could have more impact than any case.
BAHN: Economies, I think, are largely structured on the basis of power. And so people will exploit their power, to the extent that they can, in order to make outsized profits or pay the executives more, whatever they do with that power. And something like having really public cases or making really public proclamations is a deterrent to people who might otherwise exercise their power in these really negative ways that hurt the economy, the workers, the consumers.
WOODS: It’s a bit late for the deterrence in the proposed merger between Penguin Random House and Simon & Schuster. But academics and policymakers seem to oppose this decades-old norm of focusing only on consumers.
CRONIN: While this is the first case of monopsony you’ve heard of, it probably won’t be the last.
(SOUNDTRACK FROM THE SONG, “MAHNA MAHNA”)
THE MUPPETS: (Singing) Mahna mahna. Doo-doo-doo-doo-doo. Mahna Mahna. Doo, doo, doo, doo.
WOODS: Before we go, a quick reminder to take our annual podcast survey. You can find it at npr.org/podcastsurvey. Thanks a lot.
This show was produced by Jamila Huxtable with engineering by James Willetts. It has been verified by Catherine Yang (ph). Viet Le is our main producer. Kate Concannon is editing the show. And THE INDICATOR is an NPR production.
(SOUNDTRACK FROM THE SONG, “MAHNA MAHNA”)
THE MUPPETS: Mahna mahna.
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