Have you ever wonder about market competition? While mentoring a young startup for the market monopoly leads me to discover the other competitive scenario of a market. Here is what I learned
There are 4 types of market competition
- Monopoly
- Duopoly
- Oligopoly
- Oligopsony
Duopoly
This is the case where we have two sellers. Without getting into the mathematical details, we discover that the price is lower than the monopoly price but higher than the competitive price. The quantity is also between the two. The best outcome for the two firms would be to share the monopoly profits between them; but each side has an incentive to cheat, which results in a different equilibrium.
Oligopoly
In this case, we are adding a few more sellers. As we add more sellers, the equilibrium moves along the demand curve towards the competitive equilibrium, as in the following diagram:
Figure 5.5 Competitive Equilibrium, Credit: B. Posner
Oligopsony
An oligopsony is a market form in which the number of buyers is small while the number of sellers, could be large.
This typically happens in a market for inputs where numerous suppliers are competing to sell their product to a small number of (often large and powerful) buyers.
It contrasts with an oligopoly, where there are many buyers but few sellers.
Often buyers play off one supplier against another, thus lowering their costs. They can also dictate exact specifications to suppliers, for delivery schedules, quality, and (in the case of agricultural products) crop varieties.
They also pass off much of the risks of overproduction, natural losses, and variations in cyclical demand to the suppliers.
Agriculture
One example of an oligopsony in the world economy is cocoa, where three firms (Cargill, Archer Daniels Midland, and Barry Callebaut) buy the vast majority of world cocoa bean production, mostly from small farmers in third-world countries. Likewise, American tobacco growers face an oligopsony of cigarette makers, where three companies (Altria, Brown & Williamson, and Lorillard Tobacco Company) buy almost 90% of all tobacco grown in the US and other countries.
Thus authors have fewer truly independent outlets for their work. This simultaneously depresses advances paid to authors and creates pressure for authors to cater to the tastes of the publishers in order to ensure publication, reducing viewpoint diversity.
This is the case where we have two sellers. Without getting into the mathematical details, we discover that the price is lower than the monopoly price but higher than the competitive price. The quantity is also between the two. The best outcome for the two firms would be to share the monopoly profits between them; but each side has an incentive to cheat, which results in a different equilibrium.
Oligopoly
In this case, we are adding a few more sellers. As we add more sellers, the equilibrium moves along the demand curve towards the competitive equilibrium, as in the following diagram:
Figure 5.5 Competitive Equilibrium, Credit: B. Posner
Oligopsony
An oligopsony is a market form in which the number of buyers is small while the number of sellers, could be large.
This typically happens in a market for inputs where numerous suppliers are competing to sell their product to a small number of (often large and powerful) buyers.
It contrasts with an oligopoly, where there are many buyers but few sellers.
Often buyers play off one supplier against another, thus lowering their costs. They can also dictate exact specifications to suppliers, for delivery schedules, quality, and (in the case of agricultural products) crop varieties.
They also pass off much of the risks of overproduction, natural losses, and variations in cyclical demand to the suppliers.
Agriculture
One example of an oligopsony in the world economy is cocoa, where three firms (Cargill, Archer Daniels Midland, and Barry Callebaut) buy the vast majority of world cocoa bean production, mostly from small farmers in third-world countries. Likewise, American tobacco growers face an oligopsony of cigarette makers, where three companies (Altria, Brown & Williamson, and Lorillard Tobacco Company) buy almost 90% of all tobacco grown in the US and other countries.
Thus authors have fewer truly independent outlets for their work. This simultaneously depresses advances paid to authors and creates pressure for authors to cater to the tastes of the publishers in order to ensure publication, reducing viewpoint diversity.
In U.S. publishing, five publishers known as the Big Five account for about two-thirds of books published. Each of these companies runs a series of specialized imprints catering to different market segments and often carrying the name of formerly independent publishers. Imprints create the illusion that there are many publishers, but imprints within each publisher coordinate so as not to compete with one another when seeking to acquire new books from authors.
Over at least 30 years, supermarkets in developed economies around the world have acquired an increasing share of grocery markets. In doing so, they have increased their influence over suppliers—what food is grown and how it is processed and packaged—with impacts reaching deep into the lives and livelihoods of farmers and workers worldwide. In addition to increasing their market share with consumers, consolidation of suppliers means that retailers can exercise significant market power. In some countries, this has led to allegations of abuse, unethical and illegal conduct.
The situation in Australia is a good example, with two retailers, Coles and Woolworths controlling 70% of the national food market.
Over at least 30 years, supermarkets in developed economies around the world have acquired an increasing share of grocery markets. In doing so, they have increased their influence over suppliers—what food is grown and how it is processed and packaged—with impacts reaching deep into the lives and livelihoods of farmers and workers worldwide. In addition to increasing their market share with consumers, consolidation of suppliers means that retailers can exercise significant market power. In some countries, this has led to allegations of abuse, unethical and illegal conduct.
The situation in Australia is a good example, with two retailers, Coles and Woolworths controlling 70% of the national food market.
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