Oligopsony

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An oligopsony (from Ancient Greek ὀλίγοι (oligoi) "few" + ὀψωνία (opsōnia) "purchase") is a market form in which the number of buyers is small while the number of sellers in theory could be large. This typically happens in a market for inputs where numerous suppliers are competing to sell their product to a small number of (often large and powerful) buyers. It contrasts with an oligopoly, where there are many buyers but few sellers. An oligopsony is a form of imperfect competition.

The terms monopoly (one seller), monopsony (one buyer), and bilateral monopoly have a similar relationship.

one few
sellers monopoly oligopoly
buyers monopsony oligopsony

Industry Examples[edit]

In each of these cases, the buyers have a major advantage over the sellers. They can play off one supplier against another, thus lowering their costs. They can also dictate exact specifications to suppliers, for delivery schedules, quality, and (in the case of agricultural products) crop varieties. They also pass off much of the risks of overproduction, natural losses, and variations in cyclical demand to the suppliers.

Agriculture[edit]

One example of an oligopsony in the world economy is cocoa, where three firms (Cargill, Archer Daniels Midland, and Callebaut) buy the vast majority of world cocoa bean production, mostly from small farmers in third-world countries. Likewise, American tobacco growers face an oligopsony of cigarette makers, where three companies (Altria, Brown & Williamson, and Lorillard Tobacco Company) buy almost 90% of all tobacco grown in the US and other countries.[citation needed]

Retail[edit]

Over at least 30 years, supermarkets in developed economies around the world have acquired an increasing share of grocery markets. In doing so they have increased their influence over suppliers – what food is grown and how it is processed and packaged – with impacts reaching deep into the lives and livelihoods of farmers and workers worldwide.[1] In addition to increasing their market share with consumers, consolidation of suppliers means that retailers can exercise significant market power. In some countries, this has led to allegations of abuse, unethical and illegal conduct.[2]

The situation in Australia is a good example, with two retailers, Coles and Woolworths controlling 70% of the national food market.[3]

References[edit]

  • Bhaskar, V., A. Manning and T. To (2002) 'Oligopsony and Monopsonistic Competition in Labor Markets,' Journal of Economic Perspectives, 16, 155–174.
  • Bhaskar, V. and T. To (2003) 'Oligopsony and the Distribution of Wages,' European Economic Review, 47, 371-399.
  1. ^ Consumers International. "The relationship between supermarkets and suppliers:". Retrieved 11 June 2013. 
  2. ^ Background Briefing. "Casualties in the supermarket war". Australian Broadcasting Corporation. Retrieved 11 June 2013. 
  3. ^ Consumers International. "The relationship between supermarkets and suppliers:". Retrieved 11 June 2013.