Monopsony in College Athletics—Posner

The most common type of cartel is an agreement among competitors not to sell their product below a fixed price that will generate monopoly profits for the parties to the agreement. But another type of cartel, termed monopsonistic (from the Greek words for “one” and “purchasing of food”) rather than monopolistic (one seller, versus one buyer in a monopsonized market), is an agreement among competitors not to pay more than a fixed price for a key input, such as labor. By agreeing to pay less, the cartel purchases less of the input (and perhaps of lower quality), because less is supplied at the lower price (and suppliers may lower quality to compensate, by reducing their costs, for the lower price they receive). 

The National Collegiate Athletic Association behaves monopsonistically in forbidding its member colleges and universities to pay its athletes. Although cartels, including monopsonistic ones, are generally deemed to be illegal per se under American antitrust law, the NCAA’s monopsonistic behavior has thus far not been successfully challenged. The justification that the NCAA offers—that collegiate athletes are students and would be corrupted by being salaried—coupled with the fact that the members of the NCAA, and the NCAA itself, are formally not-for-profit institutions, have had sufficient appeal to enable the association to continue to impose and enforce its rule against paying student athletes, and a number of subsidiary rules designed to prevent the cheating by cartel members that plagues most cartels. 

As Becker points out, were it not for the monopsonistic rule against paying student athletes, these athletes would be paid; the monopsony transfers wealth from them to their “employers,” the colleges. A further consequence is that college teams are smaller and, more important, of lower quality than they would be if the student athletes were paid. 

One might ask why colleges choose to collude on the student athlete dimension rather than on some other dimension, such as tuition—agreeing to minimum tuition levels, or maximum scholarships. The answer I think lies in my earlier point—the “justification” (specious though it may be) that paying student athletes would corrupt the educational process, an argument that draws on a tradition of admiration for amateurism even in adult athletic competition, as in tennis until 1968. Efforts to fix the price for a college education would encounter sharper antitrust challenges—and indeed the Ivy League schools were forced by antitrust litigation to drop their attempt to limit competition in scholarship aid, a form of price fixing—in effect colluding on tuition discounts, which is what a scholarship is. 

College athletics would be less profitable for colleges if the student athlete market were competitive. If permitted, colleges would continue to agree to limit recruitment of athletes who could not satisfy degree requirements and to require athletes to attend classes and thus be bona fide students, because otherwise competition for the best athletes would tend to eliminate the “student athlete”; college teams would be largely composed of athletes who had no interest in or capacity to obtain a college education; awarding them a degree would be meaningless. The college would be engaged in a business unrelated to its academic mission and would thus have to pay taxes on its teams’ earnings. Worse, alumni donations to their alma mater, which are stimulated by the success of the college’s teams, would wilt if the teams were composed of non-students. If the University of Chicago bought the Chicago Bears, and renamed the team the University of Chicago Bears, would alumni of the University of Chicago write bigger checks to the University? 

For similar reasons, I don’t think eliminating the rule against paying student athletes would result in their being paid actual salaries. The concept of a student who is also a professional athlete would trouble alumni. I expect that instead the student athletes would receive exceptionally generous scholarships—scholarships that would yield more than the full cost of tuition and living expenses. But the sky would not be the limit, since, facing higher labor costs, college teams would be less lucrative. 

A possible legal complication in repealing the rule against athlete salaries would be the salary disparity between male and female college athletes. The only really lucrative college sports are football, a male sport, and men’s basketball. Competitive salaries for college football and basketball players would vastly exceed those for other sports, including women’s sports. Paying lower salaries to women athletes could invite challenges under Title IX of the Education Amendments of 1972, which among other things forbids sex discrimination in education that receives federal subsidies. 

The strongest argument against eliminating the NCAA cartel is that it would make colleges and universities poorer, and this would be a social loss if one assumes (plausibly) that higher education creates external benefits. Of course the government could replace the lost revenues with subsidies financed by taxes. But while monopsony is inefficient, tax increases create distortions similar to those created by monopoly and monopsony.

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The problem with monopsony models is they assume long-run undissipated rents. What is the barrier to entry? Both buyers and sellers find it easier and more efficient to make adjustments the longer the period of time that elapses after a wage change, both the supply of and demand for labor.

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