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Difficulty: MediumMonopsony and Other Buyer-Dominated Market Structures

In an agricultural region, hundreds of small-scale sugarcane farmers sell their raw harvests exclusively to three dominant processing mills that compete for the supply. Which market structure best describes the buyer side of this factor market?

  1. OligopsonyAnswer
  2. B
    Oligopoly
  3. C
    Bilateral monopoly
  4. D
    Monopolistic competition

Answer

The market structure on the buyer side is best described as an oligopsony.
An oligopsony is a market structure characterized by a small number of powerful buyers purchasing from a large pool of sellers. In this scenario, three major processing mills act as the primary buyers for hundreds of individual sugarcane farmers, granting the buyers substantial control over purchasing prices.

Step-by-Step Solution

1
Identify the side of the market specified in the prompt
The prompt asks specifically about the buyer side of the factor market.
Analyzing market structure requires distinguishing between buyer-dominated and seller-dominated power.
2
Evaluate the number of market participants on each side
There are many sellers (hundreds of farmers) and a few major buyers (three processing mills).
A market featuring a small group of large buyers facing many independent suppliers is defined as an oligopsony.

Key Concept

Oligopsony Market Structure
Estimated Time:1m 0s
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Topics

Monopsony and Other Buyer-Dominated Market Structures

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