The word oligopsony comes from the Greek words ” oligos ” which means little, and ” psonio ” which means, buy. Completely opposed to the oligopoly where power belongs to the producers or sellers. It is a type of market and competition located in what we normally know as imperfect competition, which arises within a market in which there is a small number of demanders in whom total control and power over the prices of the different products and on the quantities of a product on the market . This means that the benefits are mainly for buyersthose who have a role as intermediaries , not the producers, who are going to be affected by worsening their situation because they cannot receive a reasonable price for the products they make. There are many bidders, but very few demanders, in other words, all power resides in the hands of the buyers.
What is oligopsony?
The oligopsony is part of the imperfect competition that occurs in a market in which there are few applicants , and in them all control and power over the different prices of the products and over the quantities that are generated from it are delegated. buyers are the most benefited by acting as intermediaries.
- Oligopsony characteristics
- Advantages of oligopsony
- Examples of oligopsony
The oligopsony is developed within the framework of a market of imperfect competition and for this reason it is that we can observe that the buyers are the ones who can exercise all the power over the conditions that the market presents.
The different companies that make up the oligopsony are interdependent, that is, the policies and decisions taken in one of the companies that are part of it will have a series of direct repercussions on the rest of the companies.
The type of products in this market class are usually homogeneous .
The demanding companies make sure to acquire extraordinary profits always taking care that these profits do not attract competition in their market .
The number of buyers is quite small for each product or service that is offered.
The price of the products is influenced because the number of buyers is very low.
Advantages of oligopsony
Some of the advantages that we can observe within an oligopsony are:
- The buyers have the power to determine the prices of products.
- There is no competition on the part of the demand and its influence within the market is absolute.
- They have the advantage that they do not need to hire a lot of work personnel .
- In the oligopsony, there is the possibility of being able to acquire the amount of products that you want at the current price without exerting any type of influence on the price already established.
- Another outstanding feature of this market is that the greater the elasticity that you have the supply of certain product, the effects that may have on the price will be much lower .
- There is a very close relationship between monopoly and monopsony , this because a monopoly company will very easily become the sole buyer of many products, mainly products such as raw materials, semi-finished products and other types of inputs of this nature.
- The sellers of the products do not have the ability to impose any type of conditions on their goods or products.
- The products , goods or services must adapt to the demands of buyers in terms of price and quantity.
- It can lead to a loss of efficiency because it reduces the surplus of producers without being able to compensate it.
- If there are a large number of suppliers and a single applicant, it could produce extreme situations of deficits .
Examples of oligopsony
Some of the examples of oligopsony that we can observe commonly and that many times we do not know are mentioned below.
- The sale of airplanes : As we know, not everyone has the capacity to acquire or buy a private plane , it is only the governments of countries or large magnates and businessmen that could have the purchasing power to be able to acquire this type of transport. For this reason, the number of aircraft buyers is extremely small and sellers must apply flexibility at the time of sale so as not to lose it to the competition.
- The cinemas : the facilities we see in theaters are unique places because they need a giant screen to project films for this reason responsible for making such screens have a very small number of buyers.
- Submarine manufacturers : The sale of submarines is closely limited to the armies and military of some countries so that buyers are not found on a large scale.
- Restoration of old cars : The companies that repair old cars are very few and the people who own this type of car are in the same way in very few numbers.
- Car manufacturers : This type of company will need large specialized machines to be able to assemble a body , for this reason the manufacturers of the tools necessary for assembly have a very limited clientele with which they must agree fair prices for both parties.