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What Are The Advantages And Disadvantages Of Oligopsony?

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Rosie Normanton answered
Oligopsony brings advantages mainly to buyers because they gain excess amounts of power over the multiple sellers and can often dictate how everything flows. Of course, the disadvantages are mostly to the sellers because they will just have to take whatever they can get.

  • Definition

Oligopsony is a term in business that refers to a situation where there are many sellers and few buyers.

The biggest advantage in a situation like this would be that the buyers have much more control. This is because there are so few of them yet so many people looking to sell. Because of this, the buyers are given a great deal of power and control over the exchange. They can use this factor to their benefit and dictate prices, quantity and other conditions knowing that the seller may be desperate to sell.

Obviously - this is considerably problematic for sellers, because they may have to compromise their prices in order to get their product sold. This puts the sellers at a considerably loss.

  • The contrast to an oligopsony

The opposite of oligopsony is an oligopoly. This is where there are fewer sellers and a greater number of buyers. In this case, the advantages lie very much with the sellers, because now they can dictate prices and other conditions with a smaller risk of encountering a lot of competition.

In oligopolies, there can also be certain sectors of a market where there will be a duopoly - the theory that two sellers dominate the market and cater to the needs of buyers, potentially bringing price discrimination.

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