Oligopsony - Revision history

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	<onlyinclude>An '''oligopsony''' is a situation when there are only a small number of buyers in a market. This means that a ~~limited~~ number of people have '''[[market power]]''' and are able to lower the [[price]] they pay for a good or service due to the lack of [[competition]]. Similar to a [[monopsony]] an oligopsony can affect the price of a specific good or service in a market but unlike an oligopoly the oligopsony affects price from the '''[[demand side]]''' or '''[[buyers side]]''' of the market.</onlyinclude><ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Monopsony." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-2189?rskey=65pxfe&result=1, 2009 [June 1, 2016]</ref> Because there is only a small number of buyers, the seller loses its bargaining power, it is unable to find another buyer outside the oligopsony that is willing to pay a higher price for the good or service it is selling. Firms agree on a common course of action in the market, essentially they agree not to compete (too much) which normally would result in higher prices.<ref>T. Pettinger. ''Oligopsony.'' [Online], Available: http://www.economicshelp.org/blog/2951/economics/oligopsony-definition/, Jul. 6, 2011 [June 1, 2016].</ref>		<onlyinclude>An '''oligopsony''' is a situation when there are only a small number of buyers in a market. This means that a small number of people (or firms) have '''[[market power]]''' and are able to lower the [[price]] they pay for a good or service due to the lack of [[competition]]. Similar to a [[monopsony]] an oligopsony can affect the price of a specific good or service in a market but unlike an oligopoly the oligopsony affects price from the '''[[demand side]]''' or '''[[buyers side]]''' of the market.</onlyinclude><ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Monopsony." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-2189?rskey=65pxfe&result=1, 2009 [June 1, 2016]</ref> Because there is only a small number of buyers, the seller loses its bargaining power, it is unable to find another buyer outside the oligopsony that is willing to pay a higher price for the good or service it is selling. Firms agree on a common course of action in the market, essentially they agree not to compete (too much) which normally would result in higher prices.<ref>T. Pettinger. ''Oligopsony.'' [Online], Available: http://www.economicshelp.org/blog/2951/economics/oligopsony-definition/, Jul. 6, 2011 [June 1, 2016].</ref>

	Imagine there are only three people who live in a town, there is only one store and it sells bread. All three of the people agree that they only want to pay $1.00 for a loaf of bread so the store has to set their prices at $1.00 to make any money. Like an oligopoly, an oligopsony has to stay relatively uncompetitive, if one person decides that they are willing to pay $2.50 for a loaf of bread then the store can raise its prices because the sale of one loaf to that person will yield greater [[revenue]] than a sale at $1.00 to the two others. This would break up the oligopsony.		Imagine there are only three people who live in a town, there is only one store and it sells bread. All three of the people agree that they only want to pay $1.00 for a loaf of bread so the store has to set their prices at $1.00 to make any money. Like an oligopoly, an oligopsony has to stay relatively uncompetitive, if one person decides that they are willing to pay $2.50 for a loaf of bread then the store can raise its prices because the sale of one loaf to that person will yield greater [[revenue]] than a sale at $1.00 to the two others. This would break up the oligopsony.
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	==References==		==References==
	{{reflist}}		{{reflist}}
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	<onlyinclude>An '''oligopsony''' is a situation when there are only a small number of buyers in a market. This means that a limited number of people have '''[[market power]]''' and are able to lower the [[price]] they pay for a good or service due to the lack of [[competition]]. Similar to a [[monopsony]] an oligopsony can affect the price of a specific good or service in a market but unlike an oligopoly the oligopsony affects price from the '''[[demand side]]''' or '''[[buyers side]]''' of the market.</onlyinclude><ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Monopsony." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-2189?rskey=65pxfe&result=1, 2009 [June 1, 2016]</ref> Because there is only a small number of buyers, the seller loses its bargaining power, it is unable to find another buyer outside the oligopsony that is willing to pay a higher price for the good or service it is selling. Firms agree on a common course of action in the market, essentially they agree not to compete (too much) which normally would result in higher prices.<ref>T. Pettinger. ''Oligopsony.'' [Online], Available: http://www.economicshelp.org/blog/2951/economics/oligopsony-definition/, Jul. 6, 2011 [June 1, 2016].</ref>		<onlyinclude>An '''oligopsony''' is a situation when there are only a small number of buyers in a market. This means that a limited number of people have '''[[market power]]''' and are able to lower the [[price]] they pay for a good or service due to the lack of [[competition]]. Similar to a [[monopsony]] an oligopsony can affect the price of a specific good or service in a market but unlike an oligopoly the oligopsony affects price from the '''[[demand side]]''' or '''[[buyers side]]''' of the market.</onlyinclude><ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Monopsony." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-2189?rskey=65pxfe&result=1, 2009 [June 1, 2016]</ref> Because there is only a small number of buyers, the seller loses its bargaining power, it is unable to find another buyer outside the oligopsony that is willing to pay a higher price for the good or service it is selling. Firms agree on a common course of action in the market, essentially they agree not to compete (too much) which normally would result in higher prices.<ref>T. Pettinger. ''Oligopsony.'' [Online], Available: http://www.economicshelp.org/blog/2951/economics/oligopsony-definition/, Jul. 6, 2011 [June 1, 2016].</ref>

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	*[[Market failure]]		*[[Market failure]]
	*[[Economies of scale]]		*[[Economies of scale]]
	*[[Anti-trust ~~Legislation~~]]		*[[Anti-trust legislation]]

	==References==		==References==
	{{reflist}}		{{reflist}}

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<onlyinclude>An '''oligopsony''' is a situation when there are only a small number of buyers in a market. This means that a limited number of people have '''[[market power]]''' and are able to lower the [[price]] they pay for a good or service due to the lack of [[competition]]. Similar to a [[monopsony]] an oligopsony can affect the price of a specific good or service in a market but unlike an oligopoly the oligopsony affects price from the '''[[demand side]]''' or '''[[buyers side]]''' of the market.</onlyinclude><ref>J.Black, N. Hashimzade, and G. Myles. (2009) "Monopsony." [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-2189?rskey=65pxfe&result=1, 2009 [June 1, 2016]</ref> Because there is only a small number of buyers, the seller loses its bargaining power, it is unable to find another buyer outside the oligopsony that is willing to pay a higher price for the good or service it is selling. Firms agree on a common course of action in the market, essentially they agree not to compete (too much) which normally would result in higher prices.<ref>T. Pettinger. ''Oligopsony.'' [Online], Available: http://www.economicshelp.org/blog/2951/economics/oligopsony-definition/, Jul. 6, 2011 [June 1, 2016].</ref>

Imagine there are only three people who live in a town, there is only one store and it sells bread. All three of the people agree that they only want to pay $1.00 for a loaf of bread so the store has to set their prices at $1.00 to make any money. Like an oligopoly, an oligopsony has to stay relatively uncompetitive, if one person decides that they are willing to pay $2.50 for a loaf of bread then the store can raise its prices because the sale of one loaf to that person will yield greater [[revenue]] than a sale at $1.00 to the two others. This would break up the oligopsony.

Alternatively if the one person decided to raise their willingness to pay for a loaf of bread from $1.00 to $1.10 the change is small enough that the other two people will not be greatly affected. In an oligopoly the actions and choices made by one buyer can affect the others, thus for an oligopoly to work there needs to be some degree of consistency among the firms.

==Oligopsony Market==

[[File: Monopsony- Graph.png|450px|thumb|right|Figure 1. The effect of a oligopsony market compared to a competitive market.]]

If the firms in an oligopsony agree to pay only a certain price for a good or service and only buy a certain quantity then they will operate the same as a monopsony. When there is perfect competition in a market the seller can sell to a number of buyers, the competition between the buyer’s results in an equilibrium price that is acceptable to both buyer and seller. In an oligopsony market the seller can only sell to a small number of firms which act together so it must accept the price that the firms offer to buy at as there is no alternative buyer.

'''Figure 1''' shows the effect that an oligopsony has on a market and the comparison with a perfectly competitive market:
*At '''Point B''' the market is at equilibrium, it is competitive and the supply ('''S''') meets the demand ('''D'''). Both the price ('''PC''') and the quantity ('''QC''') reflect this equilibrium.
*At '''Point C''' there is an oligopsony market with a small number of buyers acting together.
*In a competitive market, the change should result in the price being '''P*''' and the quantity being '''QM''' but because there is only a small number of buyers, the market ends up at '''Point C'''.
*At '''Point C''' the buyers get the same quantity ('''QM''') as '''Point A''' would but they only pay a fraction of the price, '''PM''' instead of '''P*'''.
*The '''Red Triangle (ABC)''' represents the [[deadweight loss]] in the market caused by the oligopsony. The loss of competition results in an inefficient market. Large deadweight loss in a market can lead to [[market failure]].

==Efficiency Trade-off==
Due to the deadweight loss that an oligopsony creates in the market by its nature it is not "economically efficient" but it is nominally efficient. Nominally efficient means that while in theory there could be an efficient market without an oligopsony the nature of the good (electricity) needs to be protected from a certain amount of market forces in order to ensure the steady supply and price. When instituting an oligopsony the society is willing to forego a certain amount of efficiency to guarantee a certain level of [[utility]] or satisfaction from electricity or like services.

We forego some market efficiency to maximize the [[social welfare]] that public goods like electricity provide. This is a perpetual debate between [[market | free market economics]] and [[market | mixed market economics]], the goal of which is to decide whether to maximize efficiency which can lead to inequality or to maximize social welfare which seeks to minimize inequalities.<ref>E.J. Mishan. ''Economic Efficiency and Social Welfare: Selected Essays on Fundamental Aspects of the Economic Theory of Social Welfare.'' Milton Park: Routledge, 1981, pp. 3.</ref>

There are some criticisms of the low competition market model as an efficient outcome, see [[monopoly]].

==See Also==
*[[Monopoly]]
*[[Oligopoly]]
*[[Monopsony]]
*[[Pareto efficiency]]
*[[Market failure]]
*[[Economies of scale]]
*[[Anti-trust Legislation]]

==References==
{{reflist}}