Oligopsony

What is Oligopsony?

Oligopsony is a market condition in which a small number of buyers dominate many sellers. In contrast to a monopoly (one seller, multiple buyers) or an oligopoly (multiple sellers, many buyers), here the buyers enjoy the power.

Oligopsony - Simple Example

Suppose that in a particular region, there are only three big food processing firms but tens of thousands of farmers who are selling wheat. As there are few buyers, the firms have the power to control the price at which they purchase. The farmers, who have few alternative buyers, would have to take low prices.

Oligopsony Key Features

• Few buyers, many sellers
• Buyers have bargaining power
• Sellers can be pressured to cut prices or fulfill stringent conditions

Real-World Example

In the agricultural industry, there are big supermarket chains that tend to be the buyers and small farmers as the sellers. The few buyers have the power to ask for lower prices, which influences the earnings of numerous sellers.

Why It Matters?

Oligopsonies may affect fair prices, lower seller profits, and affect wages in labor markets (for instance, when there are few firms that employ a great number of employees in a given industry).