What is an Oligopsony?

Oligopsony is a market structure in which only a few buyers have the power to influence prices and other market conditions. This type of market structure is characterised by a high degree of concentration of buyers, which gives them the ability to dictate terms and conditions to sellers.

In an oligopsony, each buyer has significant bargaining power over the sellers due to their large size and ability to purchase large amounts of goods or services. The buyers can also use this power to negotiate lower prices from suppliers and more favourable terms, such as more extended payment periods or discounts for bulk orders. This allows them to gain an advantage over competitors in the same industry.

The presence of an oligopsony can lead to higher prices for consumers since the buyers can drive down prices from suppliers and pass on those savings in the form of higher prices for their products or services. Additionally, it can lead to reduced competition among sellers since they may be unable to compete with larger firms with cheaper inputs due to their bargaining power.

Oligopsony markets are often found in industries where few natural barriers prevent new entrants from entering the market, such as agriculture or retailing. It is common in sectors with few substitutes for a particular good or service, such as energy production or transportation services.

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