Oligopsony

economic-dictionary

Oligopsony is a type of market where there are few applicants, although there may be a large number of suppliers. Therefore, control and power over prices and transaction conditions resides with the buyers.

The term comes from the Greek words oligo (few) and psonio (purchase) and would therefore be a figure contrary to oligopoly, where power resides in the suppliers or sellers (from the Greek, polios). The term "demand oligopoly" is also used to refer to oligopsony.

Oligopsony characteristics

Among the characteristics of oligopsony, the following stand out:

  • It is a situation of imperfect competition, because, as we have commented, there are actors (in this case, buyers), who can exercise power over market conditions.
  • Companies are interdependent. In other words, the policies carried out by each of them have a direct impact on the rest.
  • The products of this type of market are usually homogeneous.
  • The demanding companies will ensure that the market price agreed between them ensures extraordinary profits for all, but that, in turn, is not a sufficient stimulus to attract new competition to the market.

The extreme situation of this type of market would be that there were a large number of bidders and there was only one claimant. But in this case, it would no longer be called oligopsony, but we would be facing a pure monopsony, much less frequent than the first.

Oligopsony example

Examples of oligopsony can be found in some food markets, where there are cases in which large food distributors exercise power over producers (which are many more in number), thus being able to control the purchase of a product.

In the case of the cocoa market, three companies buy most of the world's production from a large number of small producers. Therefore, these three companies have the power to control the price and the transaction conditions.

In the following table you can see all the types of market in imperfect competition:

Market structureNumber of bidders and degree of product differentiationDegree of control over priceExample
MonopolyA single bidder, there are no substitute productsFullDrinking water services monopoly (unregulated)
OligopolyFew suppliers with homogeneous or differentiated productsAnyVehicle manufacturing (differentiated) or chemical products manufacturing (undifferentiated)
Monopolistic competitionMany bidders with differentiated productsAnyFast food
MonopsonySingle plaintiffFullPublic work
OligopsonyFew plaintiffsAnyLarge food distributors.
Market structure

Tags:  Commerce latin america economic-dictionary 

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