Economics: Oligopolies and Oligopsonies

Essay by abashamUniversity, Bachelor'sA+, December 2003

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Oligopolies and Oligopsonies

This article is about the trend of oligopolies and how that creates oligopsonies. We already defined in oligopoly in class as an industry where there are few producers. An oligopsony is the term used when there are only a few buyers for that oligopoly. One example is "... the limited number of national book chains." Since there are three major book chains, namely Barnes and Noble, Borders, and Amazon; it seems that if a book does not do well in one of those store then it is not considered a successful book. I cannot help but think of bookstore like Walden's or some of the smaller chains that do not seem to make a difference because they just are not big enough to make a dent in the numbers.

The example in the article that best helped me understand how an oligopsony works was the McDonald's example.

It stated that the biggest buyer of potatoes in the world is McDonald's and some other well-known fast food restaurants. These buyers use an intermediary. The top three fast food restaurants determine the "over all demand, they price they'll be willing to pay and the time of delivery." The article goes one to state that the best way to counter and oligopsony is with an oligopoly. Large producers can to some extent stand up to the larger chains selling the products while smaller producers are at their mercy. So really, oligopsonies are just oligopolies to the oligopolies that serve the consumer. (That was a mouthful.)

The article begins talking about how even though we like to think of the American market as a free democracy, it is in reality an oligopoly. Then the internet appeared and was supposed to revolutionize all that. However, with Amazon and Toys R us merging...