Oligopsony – Definition

Cite this article as:"Oligopsony – Definition," in The Business Professor, updated August 1, 2019, last accessed November 26, 2020, https://thebusinessprofessor.com/lesson/oligopsony-definition/.

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Oligopsony Definition

Oligopsony works just like oligopoly involving a few number of sellers. This market has a few big buyers willing to buy a product or service. The number being limited enables the purchasers to have a sense of control over the sellers, and lets them negotiate with product prices, if required.

A Little More on What is an Oligopsony

We can understand the concept of oligopsony well by considering an example of the U.S. fast food industry. It comprises of a few big food chains or buyers such as Burger King, McDonald’s, Wendy’s, etc. controlling the entire U.S. meat industry. This ultimately gives them the authority to determine prices they want to pay for meat, and have a direct influence over labor regulations and animal welfare conditions.

Another example that goes well with oligopsony is of Cocoa. 3 big companies including Cargill, Barry Callebaut, and Archer Daniels Midland purchase most of the cocoa beans mostly produced by small-scale farmers worldwide. Because of oligopsony of cigarette producers, U.S. tobacco manufacturers encounter issues as well. 3 major companies including Brown & Williamson, Altria, and Lorillard Tobacco Company purchase around 90% of all the tobacco manufactured in the U.S. and globally.

As per the United States publishing statistics, 67% of the total books are published by 5 publishers commonly known as the Big Five. These publishing firms have the ownership of a series of special imprints created for unique market segments, and usually, retain the names of previous publishers. Imprints make an illusion of having too many publishers in the markets. Imprints within every publisher eliminates internal rivalry, when looking for the acquisition of exclusive books from authors. Oligopsony also affects the amounts paid to writers as advances, and forces them to create content as per the publishers’ preferences and desires, thereby, affecting diversity.

Supermarkets in developed nations are gaining more power and control. They have started influencing the suppliers for what kind of food should be grown, processed, and packaged. Oligopsony has a huge impact on the livelihood and earnings of farmers working throughout the world. Besides fostering their market share and worth among customers, oligopsony has also pushed many incompetent suppliers out of the race. There are many nations where oligopsony is a matter of unethical, unrightful, and illegitimate activities.

Monopsony vs Oligopsony

Monopsonies take place when sellers usually strive to focus on one buyer’s business, and have competition related to price. This ultimately tends to reduce the price and increase the quantity. If a business gets stuck to monopsony, it will hurt sellers’ interests, and will consequently affect their powers related to market demand and supply.

References for “Oligopsony

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