Monopoly and Monopsony Powers of Landlords in Developing Countries

Abstract

It has been argued in earlier papers [Koo 1973, 1977] that the high concentration of land ownership in developing countries led to an appropriate model of monopoly (or duopoly) in analyzing the land tenure system. Recently the monopoly thesis of land market has been given a new twist and extension in that landlords as large landholders possess the additional power to set wage rates (acting as monopsonist) in the rural labor market [Griffin 1974]. Undoubtedly the extension makes the original monopoly thesis even richer in content because there are far-reaching consequences of the rural wage market distortion. W. A. Lewis has argued that the wage rates in rural and urban sectors are closely related. Low peasant wage rates and income usually result in low wages and high profits in the urban sector [1954, p. 149]. But it is unclear in the discussion whether possession of monopoly power by landlords in the land market is a necessary or sufficient condition for them to have monopsony power in the labor market. Griffin, the proponent of the monopoly cum monopsony thesis, seems to believe that the former power is sufficient in many cases to give the latter power: Factor markets in underdeveloped countries are highly imperfect. Land is monopolized by a few families.... This alone is sufficient in many cases to give landowners monopsony power in the local labor market . [Griffin 1974, p. 222].1 The linking of power of large landlords in the two markets is much more complex than it appears at first. The purpose of this note is to clarify the issue by examining the intermediate steps and supplying the necessary qualifications. To this end one must start by comparing the demand for labor by landlords to work on the unrented portion of their holdings under a competitive land market with that under monopoly. Let r represent market rent under a competi-