Legal Definitions - oligopsony

Oligopsony

An oligopsony describes a market situation where there are only a few large buyers for a particular product or service, even though there might be many sellers. Because these few buyers dominate the demand side of the market, they have significant power to influence prices, terms, and conditions for the goods or services they purchase from the numerous smaller suppliers.

• Example 1: Dairy Farming

  Imagine a region with thousands of independent dairy farmers producing milk. However, there are only a handful of large dairy processing companies or national supermarket chains that have the infrastructure to purchase, process, and distribute this milk on a massive scale. These few large buyers dictate the prices they will pay for raw milk, the quality standards, and even the delivery schedules. Individual farmers, having limited alternative buyers for their perishable product, often have little choice but to accept these terms, demonstrating the buyers' collective power over the market.

• Example 2: Specialized Aerospace Components

  Consider the market for highly specialized components used in commercial aircraft, such as unique sensors or advanced composite materials. While many smaller companies might be capable of manufacturing these cutting-edge parts, the primary buyers are typically just a few global aircraft manufacturers (e.g., Boeing, Airbus). These dominant manufacturers, needing vast quantities of these components, can exert considerable influence over their suppliers, negotiating favorable prices, demanding specific production processes, and setting stringent delivery timelines. The numerous smaller component suppliers often compete intensely for contracts from these few powerful buyers.