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An oligopsony is amarket form in which the number of buyers is small while the number of sellers in theory could be large.This typically happens in market for inputs where asmall number of firms are competing to obtain factors of production.It contrasts with an oligopoly,where there are many buyers but just afew sellers.An oligopsony is aform of imperfect competition.

The terms monopoly(one seller),monopsony(one buyer),and bilateral monopoly have asimilar relationship.

One example of an oligopsony in the world economy is cocoa,where three firms(Cargill,Archer Daniels Midland,and 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.[citation needed]

In each of these cases,the buyers have amajor advantage over the sellers.They can 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.

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