INTRODUCTION

Firms and industries play a vital role in our economy. They always seek ways of
reducing costs of production and of improving the quality of their goods and services,
especially in a competitive market. However, in the process of interplay between the
forces of supply and demand, the happy balance between business profit and consumer
satisfaction has always remained a big problem. In most cases, the satisfaction or
interest of the consumers has been ignored due to self-interests of producers or seller,
and because of inherent market imperfections. For instance, in the case of monopoly
the position of the consumers is very weak. The monopolist usually dictates his price.
And even in a market situation where there are many producers or sellers, the latter can
agree together to forge a common price. Thus, eliminating price competition among
them in order to attain their self-interests more profits per unit of their output.
DEFINITION
Real world markets are heavily populated by oligopoly. Oligopoly markets arise in
wide assortment different industries, ranging from manufacturing to retail trade to
resource extraction to financial services. Oligopoly markets provide a veritable who's
who of business firms in the international economy. As such, oligopoly is a market
dominated by a few large suppliers. By a few, it is meant that the number of firms should
be sufficiently small for there to be conscious interdependence, with each firm aware
that its future prospects depend not only on its own policies, but also those of its rivals.
The degree of market concentration is very high thereby having a large percentage of
the market taken up by the leading firms. Firms within an oligopoly produce branded
products and there are also barriers to entry.
Unlike an oligopoly, there may also be the potential for new buyers from time to
time. In fact, if the conditions become favorable to the buyers, new companies may be
created to take advantage of those conditions. Therefore, an oligopsony may not last
very long, even after it is created, if the conditions are ripe for exploitation. In such
situations, the oligopsony may have the potential to foster even greater competition
among buyers as others get into the marketplace.
Oligopsony is the buying-side equivalent of a selling-side oligopoly. Much as an
oligopoly is a market dominated by a few large sellers, oligopsony is a market
dominated by a few large buyers. While oligopsony could be analyzed for any type of
market it tends to be most relevant for factor markets in which a handful of firms control
the buying of a factor. Two related buying side market structures are monopsony and
monopsonistic competition.
While the market for any type of good, service, resource, or commodity can, in
principle, function as oligopsony, this form of market structure tends to be most
pronounce for the exchange of factor services.

This market structure is the somewhat obscure and less noted buying
counterpart of oligopoly. However, oligopsony tends to be just as prevalent in the real
world. In fact, firms operating as oligopoly in an output market often operate as
oligopsony in an input market.
Much of the standard analysis that applies to oligopoly also applies to oligopsony.
It is not unusual for a group of firms in an industry to be oligopoly sellers of their output
and oligopsony buyers of inputs. When a small number of relatively large firms
dominate an industry, they tend to dominate most facets of the industry.
The reason the term oligopsony is seldom used is that the term oligopoly usually
covers the entire range of output selling and input buying activities. If, for example, a
few firms dominate the output market for computers as oligopoly sellers, then they are
also likely to dominate the input market for computer components, such as silicon chips,
hard disk drives, and programmers, as oligopsony buyers. If a few firms are oligopoly
sellers of gasoline, then they are also likely to be oligopoly buyers of petroleum.
SIGNIFICANCE/IMPORTANCE
The scarcity of resources impels firms and industries to strive in maximizing their
employment and production. Consequentially, various market structures were
represented by market models serving as theoretical framework for existing firms and
industries in the real world. On the contrary, these market models do not completely
represent reality in view of the fact that some enterprises do not exactly fit the
characteristics of any of these models. Nevertheless, the market models are significant
to help understand the real world where the market system is the principal element of
the economy.
The market system, in turn, allocates good sand services through the
mechanism of demand and supply. Members of the society obtain their goods and
services in the market on the basis o their ability and willingness to buy. Some say that
the market system or price system is more efficient than the government allocating
goods and services in the market. The governments role herein is to participate in
allocation function of the market system to protect the interest of the poor.
ADVANTAGES AND DISADVANTAGES
Oligopolies are pulled in two different directions. The interdependence of firms
makes them wish to collude with each other. By behaving as a monopoly they could
maximize industry profits. On the other hand, they will be tempted to compete with their
rivals to gain a bigger share of industry profits.
In an oligopoly, the companies compete and drive up each other's value. In
creating a friendly if somewhat artificial competition, attention of consumers is drawn to

these products and essentially opened the market to smaller competitors. Oligopolistic
competition in most cases leads to collaboration of the business firms on issues like
raising the prices of various goods and subdue production process. Under other given
market conditions, the competition between the sellers acquires a violent form, on the
grounds of lowering the prices and increasing the production. Collaboration of various
firms also brings about stabilization in the unsteady markets.
Many oligopsonistic industries tend to keep the prices they pay relatively
constant, preferring to compete in ways that do not involve changing the price. The
prime reason for rigid prices is that competitors are likely to match price increases, but
not price decreases. As such, a buyer has little to gain from changing prices. Decisions
made by one buyer invariably affect others and are invariably affected by others.
Competition among interdependent oligopoly buyers is comparable to a game or an
athletic contest. One team's success depends not only on its own actions but the
actions of its competitor. Oligopsonistic buyers engage in competition among the few.
Firms in an oligopsony market attain and retain market control through barriers to
entry. The most common barriers to entry include patents, resource ownership,
government franchises, start-up cost, brand name recognition, and decreasing average
costs. Each of these makes it extremely difficult, if not impossible, for potential
competitors to enter the market.
An oligopsony market is dominated by a small number of large buyers, each of
which is relatively large compared to the overall size of the market. This generates
substantial market control, the extent of market control depending on the number and
size of the buyers.
CHARACTERISTICS
This point forward discusses the characteristics of a oligopolistic model against
its counterpart oligopsony.
Oligopoly
Characteristics

very few firms which

dominate the market;
each firm produces a
big portion of the total
industry output
products are
identical or
differentiated
there is a price
agreement among
producers to promote

Oligopsony
small number of
large buyers
few alternatives
barriers to entry
interdependence
rigid prices
non-price
competition
mergers
(oligopsonistic buyers
perpetually balance
competition against

Examples

their own economic

interests
entry of new
competitors in the
market is difficult
there is strong
advertising among
those who produce
differentiated products
Caltex, Shell, Petron
PLDT
Globe
Telecommunications
SM Corporation

cooperation)
collusion (two or
more buyers that
secretly agree to
control prices,
purchasing, or other
aspects of the market)

REFERENCE
Fajardo, Feliciano R. Economics, 3rd Edition
Mansfield, Edwin. Managerial Economics, 2nd Edition
McConnell, Campbell. Economics, 1981
Ellsworth, P.T. and Leith, Clark J. The International Economy, 1975