Antitrust authorities are expanding their focus beyond traditional consumer protection to address employer practices that harm workers through things like wage suppression and limited job mobility. Lawrence Krug and Konstantin Ebinger of BRG analyze this regulatory shift, explaining why companies must assess labor market concentration risks in mergers and reconsider employment agreements that could trigger antitrust scrutiny.
For decades, one crucial input has been largely neglected in antitrust enforcement: labor. That’s changing, though, as regulators increasingly acknowledge that the growing concentration of buyer power among certain employers can lead to suppressed wages and diminished working conditions.
As labor-related enforcement actions from competition authorities around the world picks up, it’s imperative that C-suite executives and compliance professionals stay abreast of new developments to mitigate prospective risks.
For instance, recent statements from the European Commission (EC) argue that wage-fixing and no-poach agreements are inherently harmful to competition and that the commission may incorporate labor market considerations more explicitly in future merger reviews. UK and other national competition authorities in Europe have taken similar actions, while US antitrust agencies have in the past warned that such agreements could be subject to criminal prosecution, though notably, the future of a proposed ban on noncompetes is unclear.
Though the regulatory environment will continue to evolve, it is evident that enforcers are taking a more thorough review of conduct that affects labor, such that the interests of workers are given greater weight in competition analysis.
Buyer power is generally beneficial for consumers
Buyer power generally allows firms to negotiate lower input costs, which, in many cases, benefits consumers through lower prices and improved product quality. For example, large supermarket chains leverage their purchasing power to negotiate lower prices from suppliers, which can lead to more affordable goods for shoppers. Similarly, joint purchasing agreements among small businesses can create efficiencies that strengthen competition against dominant suppliers.
Typically, there is no need to be concerned about buyers setting prices too low for suppliers to survive. In such a case, the buyer would suffer immediate consequences, as the input provided by those suppliers would become inaccessible, impacting the buyer’s business. Thus, if a firm is “squeezed out” of a market, it is only because it was unable to supply its goods or services at a price level competitive with its rivals. The exit of such a firm from the market is economically efficient.
In principle, then, buyer power is beneficial to the consumer — and conduct increasing buyer power has been widely accepted as in line with improving consumer conditions under the consumer welfare standards set by various regulators.
The assumption underlying this mechanism is that suppliers exit the market when it becomes unattractive to provide their goods or services due to the low prices set by buyers. Only when suppliers do not react with a reduction in supply quantity can the buyer exert significant buyer power.
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Read moreDetailsLabor markets: An exception to the rule
Labor markets provide a rare exception to the generally accepted notion that buying power is beneficial to consumers. Unlike traditional input markets, individual labor is far less elastic and does not react significantly to wage changes.
In most industries, a supplier that cannot compete at prevailing market prices will exit the market. However, workers cannot simply “exit” the labor market — they must continue to earn a living. This dynamic makes labor particularly susceptible to abuse of buyer power. When employers consolidate hiring power — whether through wage-fixing, no-poach agreements or aggressive noncompete clauses — workers may find themselves locked into unfavorable conditions with few viable alternatives.
This becomes particularly problematic in extreme cases where labor markets are so concentrated that they resemble a monopsony, wherein a single employer effectively controls all hiring. Firms with monopsony power can suppress wages below competitive levels, knowing that workers have no better alternatives. A classic example is a remote mining town where the mine is the only major employer. Because geographic isolation prevents workers from seeking jobs elsewhere, the employer can dictate wages at arbitrarily low levels, leading to stagnation and reduced worker welfare.
One could also consider the supermarket sector, particularly for low-wage workers like cashiers and shelf stockers. In many regions, a few dominant grocery chains account for most of the available retail jobs. If these major employers coordinate hiring practices — whether through wage-fixing or informal agreements — they can suppress wages and limit job mobility. Unlike suppliers of goods who can seek alternative buyers, these workers may have few viable employment alternatives within their local area, making them vulnerable to employer-driven wage suppression.
The fundamental reason why labor is highly susceptible to abusive buyer power behavior is twofold:
- Workers will continue to supply labor even at very low wages. Unlike products or services, which could simply cease to be produced, workers cannot cease to earn a living.
- Labor is much more segmented than other input products, both geographically and in terms of skillsets. While a company producing steel can sell its product nationally or even globally, a miner may not be able to move to a different town, let alone work in a different industry. Thus, it is much more likely that situations arise where a specific labor pool faces monopsony-like buyer power.
Even in cases where labor markets are not fully monopolized by a single employer, no-poach and wage-fixing agreements can restrict competition and suppress wages. These agreements, which prevent workers from being hired by competing firms, artificially limit job mobility and reduce workers’ bargaining power. Unlike a traditional monopsony, no-poach agreements allow multiple employers to collectively exert downward pressure on wages while maintaining the illusion of competition. As a result, workers find themselves locked into current jobs with few alternatives, even when better opportunities may exist elsewhere.
Implications of buyer power in labor markets for corporate leaders
As noted above, competition authorities around the world are heightening scrutiny on mergers and business practices that could lead to labor market concentration. Investigations into employer collusion have been initiated by antitrust authorities in Europe (e.g., in France, Hungary, Lithuania, the Netherlands, Poland, Portugal, Spain and Switzerland), while the European Commission has shifted its focus toward wage-fixing agreements. C-suite executives and compliance teams considering mergers and business practices that could fall under these authorities’ widened purviews should take note.
Some industries already have faced antitrust scrutiny of their labor market practices. In 2015, the US DOJ investigated major tech firms for no-poach agreements that restricted hiring between companies. A recent ruling found that the NCAA held monopsony power over college athletes and likely violated antitrust law.
Though policies might shift, we expect a continued effort by regulatory agencies to target behaviors that create substantial buyer power in labor markets and to give more weight to the negative impacts on labor than a firm’s potential cost savings, especially for highly specialized labor markets where workers have fewer attractive alternatives.
This new regulatory climate means that firms will have to consider the impact on labor markets when pursuing mergers. Authorities may require companies to provide labor market impact assessments, demonstrating that efficiency gains do not come at the expense of fair wages or employment conditions. In some cases, commitments to preserve jobs, maintain wage levels or enhance worker mobility could become standard conditions for merger approval.
Moreover, competition policy may increasingly intersect with broader labor market regulations. As awareness of employer buyer power grows, regulators may explore additional safeguards against monopsonies, including policies that promote collective bargaining, increase transparency in wage-setting or impose stricter rules on noncompete clauses.
A new era of competition policy focused on labor markets and buying power is on the horizon. Now is the time for C-suites, compliance teams and their counsel to prepare.
Lawrence Krug
Konstantin Ebinger
