Evidence of a Monopsony: The U.S. and Saudi Arabia before 1974

Abstract

A monopsony is a single buyer for multiple suppliers where the buyer forces the suppliers to pay lower than normal prices. An example of a monopsony is a single employer hiring multiple workers and where the workers have no competitive choice about where else to work and so are forced to accept lower than normal wages offered by the monopsonist. The same situation can happen with oil. Here we show a situation from 1965 to 1974 where Saudi Arabia and OPEC were forced to accept monopsonistic oil prices given by the U.S. and the West, a situation that may actually violate the U.S. Sherman act of 1890.