The local movement needs to avoid a platform monopsony

Word of the day: monopsony.

Our mission is to guide the local-made, local-grown movement away from potential online platform monopolies and monopsonies. It’s what happens when an “aggregator” platform grows to dominate the market, thus removing agency and control from the sellers and the buyers.  With Make/Grow Local founded as a non-profit, run by and for the community, this can’t happen.

With other ecommerce platform vendors, it’s what they actually hope happens. Choose wisely!

From wikipedia, Monopsony: In economics, a monopsony (from Ancient Greek μόνος (mónos) “single” + ὀψωνία (opsōnía) “purchase”) is a market structure in which only one buyer interacts with many would-be sellers of a particular product. In microeconomic theory of monopsony, a single entity is assumed to have market power over terms of offer to its sellers, as the only purchaser of a good or service, much in the same manner that a monopolist can influence the price for its buyers in a monopoly, in which only one seller faces many buyers.

At first, today’s online platforms seem great, because they offers a better user experience than individual scattered marketplaces, and don’t the best rise to the top, benefitting all parties?

This monopoly, though, is a lot different than the monopolies of yesteryear: aggregators aren’t limiting consumer choice by controlling supply (like oil) or distribution (like railroads) or infrastructure (like telephone wires); rather, consumers are self-selecting onto the Aggregator’s platform because it’s a better experience.  [Source: Stratechery article on monopolies and monopsonies.]

What happens next, however is the problem: the platform that wins will set the terms of engagement for both buyers and sellers; it owns the middle, and can set prices, change the rules, and exercise unwanted power over the market.

One more implication of aggregation-based monopolies is that once competitors die the aggregators become monopsonies — i.e. the only buyer for modularized suppliers. And this, by extension, turns the virtuous cycle on its head: instead of more consumers leading to more suppliers, a dominant hold over suppliers means that consumers can never leave, rendering a superior user experience less important than a monopoly that looks an awful lot like the ones our antitrust laws were designed to eliminate.

We’ve seen this with every commercial platform, from HomeAway to Elance Uber to Amazon to AirBnB: drive the competition out of business with “free” or low-cost, then raise prices and monetize everything and reap billions of dollars as the next “unicorn” business.

So, to our Maine community of growers and makers, and our kindred local growers in other states: be careful about the platform you choose to sell your B2B goods through… choose the only nonprofit, community-owned ecommerce solution that was built for you.

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