Creator Economies and Monopsony Power

Most people are relatively familiar with the concept of a monopoly, where a single firm holds all, or almost all, of the market share in an industry.  This dominant firm, a single seller, has tremendous power because consumers lack suitable substitutes.  Of less familiarity is the concept of a monopsony, which is the single buyer of a resource in a market.  A labor monopsony is the sole employer in a market, and monopsonies can exist for any resource.  Often, a monopsonist is the government, which is the only legal buyer of certain resources.

As the sole consumer of a resource, a monopsonist is known for its significant power over wages and resource prices.  If there is no other buyer of a resource, the seller of that resource must often accept lower prices.  

Monopsony Explained

So, why do monopsony markets occur?  One common reason is geographic isolation combined with a localized resource.  “Mining towns” are a classic example of a monopsony, with a mining company providing almost all the jobs in a remote town near a vein of valuable ore.  All available labor is hired by the company, which is initially very profitable.  Once all other businesses fade away, however, the dominant company has no real competition for labor.  

A second reason is a rare and highly specialized resource.  Due to its rarity, the resource may come to be handled and sold by a single firm.  Often, monopsonies and monopolies are the same firm, with one specialized company being both the sole purchaser of specialized labor to handle a resource…and the sole seller of that processed resource.  An example would be companies that make weapons.  Typically aided by restrictive government charters, arms companies may be the only employers of technical workers with specific skills.

Social Media Oligopoly Market

Content creators are famously unbound by geography, which makes it seem unlikely that a monopsony could occur.  How could a single company come to dominate the market for hiring content creators and influencers?  One answer is that social media is a tremendously expensive endeavor, requiring tremendous fixed costs in terms of computer servers and web design.  A handful of tech firms dominate the social media industry, including Meta, Tik Tok, Google (owner of YouTube) and X.  

Therefore, content creators are not the economic free spirits they often portray themselves to be - they have to “work for” large oligopolies to monetize their content.  They make money by indirectly selling advertising space, either through ads that appear when viewers watch their videos or through direct product promotion within their videos.  How much they earn depends directly on the size of their audience.  This gives social media companies lots of power as “employer”; a change in their algorithms could decimate an influencer’s exposure to viewers and curtail his or her revenue.  

Switching Costs and Lack of Labor Mobility

Since no social media company has a monopoly on the market, does any one firm really have monopsony power?  Due to switching costs, social media firms could be considered individual monopsonies because labor is not easily transferable.  While a doctor, lawyer, or engineer can be instantly valuable upon moving from one employer to another, a social media influencer may lose lots of value because his or her audience may not completely transfer.  Within creator economies, labor is only as valuable as the audience it attracts, and much of the audience may not move from one social media platform to another.  

A Tik Tok star may want to go to YouTube, but may risk losing a majority of her regular audience.  Therefore, she feels “locked in” to Tik Tok and will have to accept this employer’s demands in terms of content, posting, and ad revenue sharing.  Although she could transfer her labor to a new employer with a few minutes of digital scrolling, the opportunity cost of switching platforms could be severe.  

Monopsony Market for Content Creators

Content creators and influencers can only make substantial revenue if they accept the policies and norms of mainstream social media companies.  Thus, the market for social media labor is more consolidated than it first appears.  Despite there being a wide variety of social media content and creators, there are only a small handful of platforms.  Some, such as Facebook and Instagram, are owned by one parent company (Meta).  

To maintain loyal audiences on their own platform, social media companies may offer influencers premium deals to provide exclusive content.  If a content creator is willing to only post on Meta sites, for example, he or she may receive 50 percent more in ad revenue sharing than a similarly-situated creator who does not agree to go exclusive.  This can drastically increase switching costs and turn each social media conglomerate into its own monopsony, with almost no movement of labor among firms.  

Is Regulation Needed for Social Media Labor Concentration?

While the social media giants may be creating their own monopsonies with labor “lock in”, there may be little demand for government regulation in regard to labor concentration.  Politically, there is not likely much support for ensuring higher wages for social media content creators.  Most of these content creators have other employment and are posting content to social media as aspiring side hustles.  In terms of economics, therefore, losing one’s social media influencer status does not affect employment versus unemployment.  Losing a side hustle does not factor into the official unemployment rate, which requires an individual to be completely jobless to be considered unemployed.  Because most content creators are otherwise employed beyond their ad sharing revenue or product promotion payments, they are not often considered in the macro economy.

However, the power of influencers and content creators in marketing is growing.  As large companies increasingly shift to social media advertising, there will be political pressure to ensure that social media is regulated as a “fair” marketplace.  This would include fair treatment for the many content creators who are used to promote products made by large companies.  Whether these content creators will remain human or become dominated by AI software remains to be seen; it is possible that improved AI technology will remove most human influencers from the advertising market in favor of unpaid digital creations who never argue with their monopsonist overseers.