What is an Oligopsony?
An oligopsony is a market structure in which the number of buyers is small while the number of sellers is much larger. It is the opposite of an oligopoly, which is a market in which the number of sellers is small while the number of buyers is much larger. In both cases, the market structure creates a situation where the few buyers or sellers have an outsized influence over the market.
Examples of Oligopsony
Oligopsony can be seen in a variety of different markets. Here are some examples:
- Agriculture: A few large food companies may buy a majority of the output from farmers, giving them leverage to set prices.
- Labor: A few large employers in a particular field may hire a majority of the workers in the industry, allowing them to set wages.
- Retail: A few large retailers may be responsible for the majority of sales in a particular product category, enabling them to dictate the terms of sale to suppliers.
Effects of Oligopsony
Oligopsony can have a number of different effects on the market. The most obvious is that it can lead to lower prices for buyers, as they are able to negotiate better terms from suppliers. It can also lead to lower wages for workers, as employers have more leverage in setting wages. However, it can also lead to higher prices for consumers, as the few buyers may be able to dictate prices to suppliers.
Conclusion
Oligopsony is an important market structure that can have significant effects on the market. It can lead to lower prices or wages for buyers or workers, respectively, but it can also lead to higher prices for consumers. It is important to be aware of this structure and its potential effects in order to better understand the markets in which we operate.