What is a Duopsony
A duopsony is an economic condition in which there are only two large buyers for a specific product or service, giving them great influence over sellers. It is the converse of a duopoly, in which there are only two large sellers for a specific product or service
Members of a duopsony have great power over sellers and can effectively lower market prices for their supplies.
Also known as "buyer's duopoly".
Related terms include oligopoly, which is a condition in which there are only a small number of sellers, and oligopsony, in which there are a limited number of buyers.
BREAKING DOWN Duopsony
A simple example of a duopsony would be the case of a town having only two operating restaurants. As a result, there are only two employment options for waiters and chefs. The restaurant can offer lower wages because the restaurants have less competition for finding employees. The chefs and waiters have no choice but to accept the low pay, unless they choose not to work. This shows that firms that are part of a duopsony have the power not only to lower the cost of supplies, but also to lower the price of labor.
A fishing fleet of small boats might only have two wholesale buyers in the small port town from which they sail.
An example of a duopoly would be Boeing and Airbus commanding the large passenger airplane manufacturing market. Similarly, Amazon and Apple dominate the e-book marketplace. Years ago, Coca Cola and Pepsi Cola dominated soft drink sales.
Before the age of Amazon's dominance in the retail space, Wal-Mart and arguably Costco held duopsony power over their merchandise suppliers. Any supplier of retail goods needed to distribute through these chains or perish. This gave these two companies strong bargaining positions and the ability to extract concessions from these other companies.
In the stock market, financial engineers recognized this, at least for Wal-Mart. They created an index of companies that were dependent on selling to Wal-Mart, called the Wal-Mart suppliers index.
In the smart phone market, Apple and Samsung dominate and combined they accounted for 37.6% of global sales in the fourth quarter of 2017. While this is technically an oligopsony than a duopsony, because there are other players with significant market share, none combine for a similar percentage. Therefore, with regard to phone component suppliers, Apple and Samsung can dictate more favorable terms with their suppliers.
In the computer processing chip market, Intel and Advance Micro Devices were a true duopsony with regard to their own suppliers, commanding nearly 100% of sales in their market.