At first glance it may look as if the title of this post is supposed to be “Monopoly, Shmonopoly”, but I promise, Monopsony is actually a word. And it’s the subject of todays post because I happen to think that the NBA is more like a Monopsony than a Monopoly. Whereas monopolies are markets with many buyers and one seller, monopsonies are markets with many sellers and only one buyer. In both cases, the individual has a lot of power, but the distinction is important. If you are the only seller of a good or service, you can manipulate the price by controlling supply. If you are the only buyer of a good or service, you manipulate the price by forcing the sellers to compete with each other.
It should be immediately obvious why a monopsony is a lot more fragile than a monopoly -- anyone else can choose to become a buyer any time, and when that happens, there goes a huge chunk of your negotiating power. If you own a monopoly, however, you control supply. There are many obstacles you can place in front of potential competitors, ranging from physical possession (the DeBoer family owns so many diamonds and/or diamond mines that you couldn’t grab a big chunk of that market no matter how much money you had, until some mad scientists actually figured out how to make them by squeezing coal really hard) to intellectual property protection (you can’t just rip copies of Windows and sell if for half-price. Well, not legally. In this country.).
Many have claimed that the NBA has a monopoly on professional basketball in the USA. I would argue that this is not true. What physical properties do they possess that protect a monopoly? Arenas? No, the NBA doesn’t actually own most arenas, and even if they have exclusive contracts with some Arenas, there are plenty of empty arenas that would love some business. Is it the referees? I think we all know the answer to that. Obviously sneakers, jerseys, leather balls and plane tickets are all easy to acquire. What about the brand? There’s brand power, yes. The NBA brand is a powerful thing, and certainly worth a lot of money. But strong brands do not make monopolies -- ask Hewlett Packard. Wait, I know -- it must be basketball talent. The NBA owns all the talent! That would indeed make for a strong monopoly.
The problem is that the NBA doesn’t own the supply of tall people, and more importantly, the NBA cannot control the size of the supply of tall people. If a freak nuclear accident suddenly led to the birth of a slew of super-powered tall athletes, talents like LeBron James might start growing on trees, and there’s nothing the NBA could do to limit this supply. Similarly, if there’s a dearth of tall people in generation, the NBA cannot turn a knob and open the supply floodgates to increase it. The supply of tall people is regulated by factors of nutrition, development environment and genetics. And as evil as I sometimes think NBA owners can be, I doubt they’ve got a research program hidden away anywhere that is working on the super-soldier serum.
I bet he can dunk.
There is no one owner of this supply. One can consider each player as having a mini-monopoly over his own talent; this is akin to saying that Stephen King has a monopoly on Stephen King books. Each player therefore has market power relative to the demand for his talent.
No, I think the NBA has a monopsony -- they are currently the only buyers of basketball talent in the USA. This is of course complicated because there are really many teams that all compete for the services of various players, but when it comes setting the total price via a collective bargaining agreement, there is only one buyer (the owners) and many sellers (the players). This gives the NBA a hell of a lot of negotiating power.
The NBA, however, shouldn’t mistake its position for a monopoly (and I suspect the owners are smart enough to know this, but also cagey enough not to admit this in public). The danger is, of course, that anyone with money can start a basketball league. (that is, anyone else can choose to become a buyer of basketball talent). As Arturo and David Berri have both mentioned, there are plenty of empty arenas, and there are plenty of cities that would love to support basketball. The only obstacle to this is the NBA brand -- it would be VERY difficult for any team to compete with the NBA brand. Unless, of course, the NBA has decided not to protect its brand by, you know, actually employing players and putting on basketball games.
And of course if anyone decided to start a professional league with the currently locked-out NBA players, I suspect the owners would end the lockout very quickly. And this is the real reason it hasn’t happened yet. Anyone seriously considering funding a professional basketball league will want to wait and see if the NBA is truly serious about locking the players out and defaulting on a season before investing a lot of money to start a competitive league of their own.