Hello everyone! A number of months ago, I posted an analysis of the UFC-Strikeforce merger under the DOJ-FTC horizontal merger guidelines, and why, under those guidelines, one could reasonably conclude that the UFC had a monopoly over mixed martial arts (the relevant product market) in the United States (the relevant geographic market). While the FTC elected not to take action against the UFC in response to the culinary workers union's complaint, that may have been because the FTC found that the UFC had not committed "exclusionary conduct" (i.e., done something bad), rather than finding that it lacked monopoly power. The FTC may also have simply decided that, as a matter of prosecutorial discretion, its limited resources were better invested elsewhere. Which brings us to the current situation, where the UFC is cutting established, successful fighters because "they make too much."
A firm that has market power may not always express that power by raising prices to the end consumer. Another avenue for a company to extract supracompetitive profits is to squeeze its suppliers, which is known as monopsony power. In this case, the UFC appears to be using its market power to squeeze its most basic factor input, the fighters themselves. By cutting established fighters who make decent salaries, the UFC is basically daring us, the viewers, to call its bluff. Are you really not going to buy the next UFC PPV because Jon Fitch isn't on it? Will you switch over to the World Series of Fighting, instead? It's just not plausible that such substitution will occur in sufficient volume to punish the UFC for cutting guys like Fitch.
In fact, the UFC can have its cake and eat it too, at this point. If Fitch becomes successful, he'll want back in to the UFC, and another promotion will have done the heavy lifting of making him a draw again. If not, the UFC loses nothing. But it also means that we get worse matchups, the fighters get less money, and Dana, Joe Silva, and the Fertita Bros. hold all the cards.