Assessing the Importance of Oligopsony Power in Agricultural Markets

Abstract

Oligopoly, competition among few sellers, is the cornerstone of industrial organization (10). Con-versely, its sister concept, oligopsony, competi-tion among few buyers, is scarcely mentioned. For example, oligopsony is not discussed in the entire two volume Handbook of Industrial Orga-nization, and monopsony is mentioned only in the context of incentives to integrate vertically. Two reasons apparently account for 10 econo-mists ' lack of interest in buyer market power: (i) they don't think it's very important, and (ii) they don't believe it presents any unique modeling is-sues relative to seller market power. Scherer and Ross illustrate this first viewpoint, arguing that "average concentration on the buyers ' side in manufacturing is undoubtedly lower than seller concentration " (p. 519). Tirole, in his masterful treatise on 10 theory, illustrates the second, dis-patching monopsony power in one sentence: "Naturally the conclusions [regarding monopoly power] would also hold as well for monopsony power... " (p. 65). We argue that this dismissive treatment of buyer market power is not reasonable for econo-mists interested in agriculture and agricultural markets. The Scherer and Ross viewpoint may ap-ply when considering generic inputs such as la-bor, capital, and energy. Competition for these in-puts is apt to exceed competition for the outputs they produce because firms cross product market boundaries to compete for these inputs, and there is essentially no "branding " among input buyers to diminish price competition among them. More-over, these inputs are typically mobile, hence, in elastic supply to individual buyers, limiting the