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An oligopsony is a market form in which the number of buyers is small while the number of sellers in theory could be large. This typically happens in market for inputs where a small number of firms are competing to obtain factors of production. It contrasts with an oligopoly
Oligopoly

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived from the Greek language for few sell....
, where there are many buyers but just a few sellers. An oligopsony is a form of imperfect competition
Imperfect competition

In economic theory, imperfect competition is the competitive situation in any market where the conditions necessary for perfect competition are not satisfied....
.

The terms monopoly
Monopoly

In economics, a monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it....
 (one seller), monopsony
Monopsony

In economics, a monopsony is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers....
 (one buyer), and bilateral monopoly have a similar relationship.

One example of an oligopsony in the world economy is cocoa
Cocoa

Cocoa is the dried and fully fermented fatty seed of the cacao from which chocolate is made. "Cocoa" can often also refer to the drink commonly known as hot chocolate; Cocoa solids, the dry powder made by grinding cocoa seeds and removing the cocoa butter from the dark, bitter cocoa solids; or it may refer to the combination of both cocoa p...
, where three firms (Cargill
Cargill

Cargill, Incorporated is a privately held corporation, multinational corporation, and is based in the state of Minnesota in the United States of America....
, Archer Daniels Midland
Archer Daniels Midland

The Archer Daniels Midland Company , is a conglomerate based in Decatur, Illinois. ADM operates more than 270 plants worldwide, where cereal grains and oilseeds are processed into numerous products used in food, beverage, nutraceutical, industry and animal Fodder markets worldwide....
, and Callebaut
Callebaut

Callebaut was a Belgium company and a major producer of chocolate for consumers and for professional chocolatiers. As of 1996 it is a part of the Switzerland company Barry Callebaut....
) buy the vast majority of world cocoa bean production, mostly from small farmers in third-world countries.






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An oligopsony is a market form in which the number of buyers is small while the number of sellers in theory could be large. This typically happens in market for inputs where a small number of firms are competing to obtain factors of production. It contrasts with an oligopoly
Oligopoly

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived from the Greek language for few sell....
, where there are many buyers but just a few sellers. An oligopsony is a form of imperfect competition
Imperfect competition

In economic theory, imperfect competition is the competitive situation in any market where the conditions necessary for perfect competition are not satisfied....
.

The terms monopoly
Monopoly

In economics, a monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it....
 (one seller), monopsony
Monopsony

In economics, a monopsony is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers....
 (one buyer), and bilateral monopoly have a similar relationship.

One example of an oligopsony in the world economy is cocoa
Cocoa

Cocoa is the dried and fully fermented fatty seed of the cacao from which chocolate is made. "Cocoa" can often also refer to the drink commonly known as hot chocolate; Cocoa solids, the dry powder made by grinding cocoa seeds and removing the cocoa butter from the dark, bitter cocoa solids; or it may refer to the combination of both cocoa p...
, where three firms (Cargill
Cargill

Cargill, Incorporated is a privately held corporation, multinational corporation, and is based in the state of Minnesota in the United States of America....
, Archer Daniels Midland
Archer Daniels Midland

The Archer Daniels Midland Company , is a conglomerate based in Decatur, Illinois. ADM operates more than 270 plants worldwide, where cereal grains and oilseeds are processed into numerous products used in food, beverage, nutraceutical, industry and animal Fodder markets worldwide....
, and Callebaut
Callebaut

Callebaut was a Belgium company and a major producer of chocolate for consumers and for professional chocolatiers. As of 1996 it is a part of the Switzerland company Barry Callebaut....
) buy the vast majority of world cocoa bean production, mostly from small farmers in third-world countries. Likewise, American tobacco
Tobacco

Tobacco is an agricultural product processed from the fresh leaves of plants in the genus Nicotiana. It can be consumed, used as an organic pesticide, and in the form of nicotine tartrate it is used in some medicines....
 growers face an oligopsony of cigarette
Cigarette

A cigarette is a product consumed through smoking and manufactured out of curing and finely cut tobacco leaves and reconstituted tobacco, often combined with other List of additives in cigarettes, then rolled or stuffed into a paper-wrapped cylinder ....
 makers, where three companies (Altria
Altria Group

Altria Group, Inc. , based in Henrico County, Virginia, is the parent company of Philip Morris USA, John Middleton, Inc. and Philip Morris Capital Corporation, and is one of the world's largest tobacco corporations....
, Brown & Williamson
Brown & Williamson

Brown & Williamson was an United States tobacco company and subsidiary of the giant British American Tobacco, that produced several popular cigarette brands....
, and Lorillard Tobacco Company
Lorillard Tobacco Company

Lorillard Tobacco Company is the 18th oldest company in the United States and its oldest tobacco company. They are the third largest United States tobacco company and market cigarettes under the brand names Newport , Maverick , Old Gold on Broadway, Kent , True , Satin, and Max ....
) buy almost 90% of all tobacco grown in the US.

In each of these cases, the buyers have a major advantage over the sellers. They can play off one supplier against another, thus lowering their costs. They can also dictate exact specifications to suppliers, for delivery schedules, quality, and (in the case of agricultural products) crop varieties. They also pass off much of the risks of overproduction, natural losses, and variations in cyclical demand to the suppliers.

See also

  • Monopsony
    Monopsony

    In economics, a monopsony is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers....
  • Oligopoly
    Oligopoly

    An oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived from the Greek language for few sell....