This time we will discuss the meaning of the oligopsony market, its characteristics, advantages and disadvantages along with examples. Here’s the explanation ..
Table of contents :
Understanding the Oligopsony Market
The characteristics of the Oligopsonian Market
- There are several buyers
- Generally Buyers Are Distributors
- The Products Are Raw Materials
- Product prices tend to be stable
- Few types of goods
- Even Income
Oligopsony Market Pros and Cons
- Pros
- Disadvantages
Oligopsony Market Example
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Understanding the Oligopsony Market
Oligopsony market is a form of market in which there are two or more buyers (generally business actors) who dominate the market in terms of receiving supplies, or act as the sole buyer of goods / services in the commodity market.
In this market, buyers are business actors who buy raw materials and then sell them back to the final consumer. In this market, buyers have a big role in determining the price of goods in the market.
Oligopsony market can also be interpreted as a form of imperfect competition market, namely a market that is not well organized and inequities often appear in the market.
The characteristics of the Oligopsonian Market
the meaning of the oligopsony market
- There are several buyers
In the Oligopsonic market there are several buyers who control the market where the job is to buy the products produced by the producers.
Even though they dominate the market, buyers cannot act the way they want because they will be hurting themselves.
If a buyer makes a mistake, producers can choose another buyer with a strong network and funds.
- Generally Buyers Are Distributors
In this market, most of the consumers are distributors. They buy products produced by producers to resell them to end consumers.
- The Products Are Raw Materials
All products sold in this market are raw products or semi-finished materials that have to be processed for use. The buyer then processes the raw materials and sells them to the final consumer.
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- Product prices tend to be stable
In the Oligopsony market, producers and consumers depend on each other. So, when producers increase their prices, consumers will move to other producers that offer lower prices.
When there is an economic problem, such as inflation or deflation, producers and consumers will share it.
- Few types of goods
Oligopsony products are usually in the form of commodities, such as cloves, rice, cow’s milk, and others. However, this market is formed based on the potential that exists in an area.
For example, the potential in an area is cloves, the Oligopsoni market in that area is controlled by cloves only.
- Even Income
The income of the sellers in this market tends to be evenly distributed because there is no monopoly or arbitrary determination in this market.
Oligopsony Market Pros and Cons
- Pros
In this market, the rights of producers are well protected even though the buyer acts as the ruler. This can be fulfilled because in this market there are several buyers, so when the seller feels disadvantaged, he can move to another buyer.
Still related to the first point, in this market the buyer cannot act at will. Although the buyer can determine the price, the buyer must adjust the price to the goods purchased so that the producer wants to sell to him.
Even though these markets are still not well organized, they generally prioritize fairness, avoiding fraud, and not abusing freedom.
- Disadvantages
Product quality in this market is not well maintained because sales tend to be easy. Manufacturers pay less attention to quality because in this market there are several large buyers and it is easy to sell their products so that the quality is not maintained.
In this market, manipulation is also particularly vulnerable when multiple buyers collaborate to manipulate conditions that may harm producers. Usually this manipulation occurs because the buyer wants to get a lower price.
The ease of buying and selling in this market has its own drawbacks, namely a lack of creativity. Manufacturers only focus on production without feeling the need to innovate and be creative about their products and business.
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Oligopsony Market Example
An example of an oligopsony market is a carrot market in a village. Here carrot farmers can sell their carrots to several traders in their village to sell them back to the city. Another example that best describes the market is the building construction business.
There are many businesses there, but there are some customers who want to use their construction services based on an agreed order.
