Oligopsony facts for kids

An oligopsony is a special kind of market where there are only a few buyers for a product or service. Even if there are many sellers, these few buyers have a lot of power. This is because their decisions can really change the whole market. It's a type of imperfect competition, meaning the market isn't perfectly balanced.

For example, imagine a small town where only two big companies buy all the milk from many local farmers. These two companies can decide how much they'll pay for the milk, and the farmers don't have many other places to sell their milk.

What is an Oligopsony?

An oligopsony happens when a small number of buyers control a large part of the market for a certain good or service. This gives them a lot of influence over prices and how much is produced.

How it Works

In a regular market, many buyers and sellers compete, which helps keep prices fair. But in an oligopsony, because there are so few buyers, they don't have to compete as much with each other to get what they need. This can mean they pay lower prices to the sellers than they would in a more competitive market.

Buyer Power

The buyers in an oligopsony have a lot of power. They can often set the terms of the deal, like the price they will pay or the quality they expect. Sellers, especially small ones, might have to accept these terms because they don't have many other options to sell their products.

Real-World Examples

Oligopsonies exist in many different industries around the world.

Cocoa Market

One famous example is the market for cocoa beans. Most of the world's cocoa is bought by just a few very large companies, like Cargill, Archer Daniels Midland, and Callebaut. These companies buy cocoa beans from thousands of small farmers, mostly in West Africa. Because there are only a few big buyers, they have a lot of say in the price they pay to the farmers.

Other Examples

• Tobacco: A few large tobacco companies buy most of the world's tobacco leaves from many farmers.
• Bananas: Similarly, a small number of big fruit companies buy most of the bananas grown globally.
• Job Market: Sometimes, the job market can be like an oligopsony. If there are only a few big employers in a town or for a specific type of job, they have a lot of power when hiring people. Many people are looking for work, but only a few companies are "buying" their work.

Oligopsony vs. Oligopoly

It's easy to mix up oligopsony with another market term called oligopoly.

• An oligopsony is a market with few buyers.
• An oligopoly is a market with few sellers.

Both are types of imperfect competition, but they describe different sides of the market. In an oligopoly, a few big companies sell a product, like car manufacturers or phone companies. In an oligopsony, a few big companies buy a product.

Impact of Oligopsony

Oligopsonies can have a big impact on sellers, especially small businesses or individual producers.

Lower Prices for Sellers

Because buyers have more power, they can often push down the prices they pay for goods. This means sellers might earn less money for their products than they would in a market with more buyers.

Less Innovation

Sometimes, if sellers are not getting fair prices, they might have less money or reason to invest in new ways of doing things or to improve their products. This can slow down innovation in that industry.

Quality Control

On the other hand, powerful buyers might also demand very specific quality standards, which can sometimes lead to better quality products overall, even if sellers get paid less.

See also

A friendly robot to guide you!

• Market forms
• Imperfect competition
• Oligopoly
• In Spanish: Oligopsonio para niños