Finance: What are monopolies and monopsonies?

What are monopolies and monopsonies? Monopolies are circumstances where a single company or entity providing goods or services dwarfs its competition to the extent that it can control prices for the entire market. Alphabet/Google’s domination of the SEO sector has been accused of being a monopoly. Monopsonies are the reverse situation, where a single buyer of goods or services can drive pricing lower, such as China’s estimated 90% hold on the rare earth metals market.

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Transcript

00:21

build more houses and hotels and eventually rule the world

00:24

or at least the board That's a monopoly When you

00:26

own everything and can raise rates it's pretty much whatever

00:29

level the market will pay before just opting Tio do

00:32

nothing and stay at home with a key phrase Here

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is mono and it's not related to the you know

00:37

team kissing disease mano as in one one owner One

00:41

center of price is the only game in town will

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think Microsoft in the nineteen nineties where its operating system

00:47

was pretty much the only way in which computers around

00:50

the globe could work pork Today a Google search which

00:53

is almost a monopoly with some ninety eight percent of

00:56

searches on its servers Is it bad that these companies

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produce such amazingly high desired products that they grew into

01:02

monopolies No no not at all However regulators got all

01:06

willy on them for using that monopoly leverage to then

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restrict business from peripheral competitors And that's a naughty That's

01:14

a no no The key issue revolves around what governments

01:17

defined as quote fair competition unquote like what is fair

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here Well if a gas station uses its leverage as

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a place where SUVs go to drink up is it

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fair for that station to sell a pack of gum

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for five bucks Totally But what if the station forced

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you to buy that stick of gum with every gallon

01:33

of gas Do you have alternatives What if the owner

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of that station owned all of the stations within five

01:39

hundred miles and then forced everyone who filled up toe

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by that five dollar gun with each fill fair pausing

01:46

Yeah probably not Well you could say that they have

01:49

a local monopoly and that they are unfairly leveraging that

01:53

monopoly to there Gummi advantage But okay so that's Monopoly

01:57

What about Manafort's une Well a monopoly Billy was one

02:00

seller Ammen Ops Unni is one buyer Think a coal

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mine in a small town in West Virginia As a

02:07

buyer of labour there simply isn't another employer anywhere remotely

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close I'm an optioning Well certainly a local one What

02:14

about a public school district buying textbooks for its students

02:17

Yeah pretty much of an option E Yes private schools

02:20

by textbooks but they usually represent a small percentage of

02:22

the public school volumes at least in most areas of

02:24

the country And there's not a whole lot of demand

02:27

for American textbooks in Russia right Amazon Well as faras

02:31

books go Amazon probably is well they're responsible for some

02:35

seventy percent of all books sold in the country and

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well over half around the world And that number's going

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up not down So that vaunted man ops any status

02:43

is probably coming The result While Amazon can buy it

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pretty much any price they want to buy at just

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up until the cellar of that book decides it's not

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even worth the effort to go pack up the book

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in a box and ship it to him or Teo

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Get them the log in codes you know to download

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it from their servers That isthe Sellers will sell to

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a monopoly money until the marginal value at our contribution

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of that last book is zero Then they'll stop and

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sit there on a whole pile of books or data

03:08

that they have to store and we'll do a whole

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lot of nothing Well all of this may sound like

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it brings the wheels of the world to a halt

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It doesn't necessarily mean that right if monopolies price their

03:18

products so high that nobody buys well their monopolies worthless

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And if men ops inis pay so little for the

03:23

product they consume That producer stopped producing it Well then

03:27

the need they lived to serve isn't filled and they

03:30

more or less die So there is eventually kind of

03:32

economic detente in this war of power and leverage It

03:36

just you know sheds a lot of blood getting there