What is Oligopsony?

An oligopsony is a market for a product or service in which power is held by its applicants or buyers. It can be said that it is the opposite term to monopolyInstead of being the bidders who have the power, the buyers have it.

This is due to the fact that in an oligopsony, there are few claimants that exist but there are many bidders, so the control exercised over prices and market purchasing conditions falls more on the buyer than on the seller. In the extreme case in which there is a single applicant and many bidders, we would find ourselves with a so-called monopsony.

The most common examples of oligopsony are in the food sector, whereby distributors they exercise power over the producers (since there are many suppliers of the same product). In this case, the distribution companies (supermarkets) must choose among the different suppliers (for example, glue manufacturers) which ones offer the best prices and the best purchasing conditions.

Oligopsony Characteristics

Regarding the most outstanding characteristics of an oligopsony, we have:

  • It is a market that acts as imperfect competition, since buyers exercise power over some of the conditions that are governed in the mercado (in this case on that of the bidders).
  • The products are homogeneous, otherwise it would not make sense that there were so many competition
  • Since there are more demanders, these companies will do their best to earn more than the manufacturers (suppliers), ensuring a higher profit.
  • Market companies are interdependent, as the policies or actions taken by one affect the others.

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