What is Oligopsony

Oligopsony is similar to an oligopoly (few sellers); this is a market in which there are only a few large buyers for a product or service. This allows the buyers to exert a great deal of control over the sellers and can effectively drive down prices.

BREAKING DOWN Oligopsony

The U.S. fast-food industry is an excellent example of an oligopsony. In this industry, a small number of large buyers (McDonald's, Burger King, Wendy's, etc.) controls the U.S. meat market. Such controls allow these fast-food mega-chains to dictate the price they pay to farmers for meat and to influence animal welfare conditions and labor standards.

Cocoa is another example of an oligopsony. Three firms (Cargill, Archer Daniels Midland, and Barry Callebaut) buy the vast majority of world cocoa bean production, mostly from small farmers in third-world countries. American tobacco growers also face an oligopsony of cigarette makers, where three companies (Altria, Brown & Williamson, and Lorillard Tobacco Company) buy almost 90 percent of all US-grown tobacco grown, as well as tobacco grown in other countries.

In U.S. publishing, there are five publishers known as the Big Five, which account for about two-thirds of all books published. Each of these publishing giants also owns a series of specialized imprints that cater to different market segments and often carry the name of formerly independent publishers. Imprints create the illusion that there are many publishers. Imprints within each publisher will coordinate to prevent internal competition with each other when seeking to acquire new books from authors. This oligopsony also depresses advances paid to authors and creates pressure for authors to cater to the tastes of the publishers, which reduces diversity.

Meanwhile, supermarkets in developed economies around the world are becoming more powerful. As such, they have increased their influence over suppliers—what food is grown and how it is processed and packaged. The impact of this oligopsony reaches deep into the lives and livelihoods of agricultural workers around the world. While increasing their market share with consumers, their influence has also forced many suppliers, who couldn't compete, out of business. In some countries, this has led to allegations of abuse, unethical and illegal conduct

Monopscony vs. Oligopsony

By contrast, in situations where monopsonies occur, sellers often engage in price wars to entice a single buyer's business, effectively driving down the price and increasing the quantity. Getting caught in a monopscony is also known as "racing to the bottom." It's a situation where sellers lose any power they previously had over supply and demand.