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Monday, August 04, 2003 |
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Oligonomy defined In an oligonomy, companies act as an oligopoly to one group, as an oligopsony to another. For example, a handful of companies (McCormick, Durkee) buy most of the culinary herbs grown around the world. To the farmers, they constitute an oligopsony, and the farmers are at a disadvantage to them. To the markets that resell their wares, they are an oligopoly, with an advantage over those retailers. That is a simple oligonomy, basically where a few firms act like the gatekeepers between producers and retailers. Another example occurs in the television sector. The handful of companies that own TV channels (Viacom, Disney, GE, etc.) are an oligopoly to those companies who want to buy ad time. They are an oligopsony to those studios that produce and sell programs. But, as we've said, oligopolies breed oligopsonies, as companies must consolidate to try to defend their interests. Only an oligopsony can stand toe-to-toe with an oligopoly. When several layers of the market have this opposition set up, we have a tiered oligonomy. Some examples: A small number of health insurers act as oligopolies to the companies that buy their group plans for their employees. In turn, they act as oligopsonies toward the hospitals, drug companies, and other health providers whose services their insured members buy. This is a typical oligonomy, where the insurance companies have an advantage in both directions. But what happens next makes it become a tiered oligonomy; hospitals combine forces in hospital groups to stand tall against the insurance companies. Likewise the drug companies get bigger so they can present strong oligopolies to insurance oligopsonies. Safeway, Kroger, and Wal-Mart are part of a grocery oligopoly to shoppers. To food producers and food brokers, they are oligopsonies. In turn, as we have shown elsewhere, food brokers act as oligopolies to the supermarkets. To the small food producers, they act as oligopsonies. The whole system is a tiered oligonomy. And we can extend that. The few vendors, say, that provide ice cream are an oligopsony to dairy farmers, and an oligopoly to the supermarkets. In the global chocolate industry, there are now basically two companies (Archer-Daniels-Midland and Cargill) that buy most of the coca beans. They are an oligopsony to the farmers in West Africa. In turn they act as an oligopoly to the chocolate manufacturers. There are four major chocolate producers (Nestle, Kraft, Mars, Hershey). These four act as an oligopsony to the cocoa merchants, and they act as an oligopoly to the shops and markets that sell their candy. And the big supermarkets, as we have seen, become an oligopsony/oligopoly in turn.
The formation of tiered oligonomies helps explain the rapid concentration in most industries. A new oligopoly or oligopsony restores, to some extent, balance between layers of the market. But in most cases, two distinct groups are left out of any oligonomy. Individual end-users (shoppers, patients, TV watchers) have only one power in an oligonomy, that of refusing (easier done when buying candy or watching TV than when having an appendix removed). These choices are hard to organize and to sustain. On the other hand, the workers or small producers who are at the other end of the oligonomy have little power. The cocoa grower, the dairy farmer, the nurse, the cameraman have little leverage in the oligonomy. Exceptions include growers associations and unions, but these have been losing ground fast in the last twenty years. As I see it, oligonomies are spreading in almost every market and market segment. Being both an oligopoly and an oligopsony is a very advantageous position. But it is also, for many companies, a necessary defensive move. 8:05:51 PM 
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Last update: 9/4/2007; 8:54:09 PM .
