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Finance: What are oligopolies and oligopsonies? 6 Views


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What are oligopolies and oligopsonies? Oligopolies are market manifestations where a small group of product or service providers control a market in a cartel like fashion. Examples would be in smartphones, major accounting firms, railroads, and of course, OPEC in oil. Oligopsonies are the inverse: where a small group of product or service buyers can control a market like a cartel. Examples would be the amount of beef purchased by fast food burger chains (McDonald’s, Burger King, Wendy’s) or the hold that retailers Guitar Center, Sam Ash, AMS and Sweetwater have on the musical instrument industry.

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English Language

Transcript

00:00

And finance Allah shmoop What are Olongapo Lease and Ola

00:06

GOPs unease All right people you've heard of monopolies you

00:11

know like this guy It's where there's on ly one

00:13

option for a particular service Like only one place Tio

00:17

by it for example The waterworks Yeah the electric company

00:20

maybe certain railroads You know if you don't live near

00:23

a train huh Yeah You know we're looking at you

00:26

Okay So those air monopolies What's in Olongapo Lee Well

00:30

let's take a brief detour to ancient Greece We'LL hit

00:33

New play by Sophocles is burning up the box office

00:36

Nude wrestling is popular and there's a couple of words

00:39

will want to be familiar with We've got mono which

00:42

means one or alone as in monotone Ah monolithic and

00:48

monogamous We've also got old leg which comes from the

00:51

Greek Oly ghost It means few monopoly means one place

00:56

You can buy stuff like the electric company waterworks in

00:58

the Microsoft operating system in the nineteen eighty nine So

01:02

Oleg op Aly means there's a few places you can

01:05

buy that thing It's better than a monopoly for the

01:07

buyer in terms of competition but it's not a fully

01:10

competitive market either Like you live in a small town

01:13

way out in the desert There's nothing else around for

01:15

at least a hundred miles There's one gas station in

01:18

town in that gas station Well basically has a monopoly

01:21

on all the local business Basically whatever that gas station

01:24

wants to charge for gas well you'LL have to pay

01:26

it You don't have anywhere else to go After a

01:28

while someone else opens up a second gas station Now

01:32

there's two places in town and now you've got the

01:35

beginnings of an Oleg op Aly The gas station's compete

01:38

on Price It's still not perfect competition Both stations have

01:43

good pricing power because well they control so much of

01:46

the market But they keep each other in Check their

01:49

sort of duopoly if you will A lot of cities

01:52

have oligopolies in grocery stores A few brands will have

01:55

locations in an area but competition's pretty thin on a

01:58

national scale True oligopolies or hard come by and still

02:01

some industries have virtual oligopolies like cell phone service for

02:05

example right we have Verizon and tea and just a

02:08

handful of other smaller providers exist But generally speaking people

02:12

are forced to choose among the big players Right Eighteen

02:15

Bryce and Sprint maybe T Mobile You know guys like

02:17

that computer operating systems or another biggie you could load

02:20

up on one of those crowd sourced operating systems that

02:24

you're weird basement dwelling cousin prefers But in practice you're

02:28

almost certainly going to use Microsoft and or Apple and

02:31

that's about it Often end up with an oligopoly There

02:35

needs to be significant barriers to entry in a market

02:39

Well these barriers of entry can take the form of

02:41

high fixed costs to get into it like cost a

02:44

billion dollars Teo make an oil rig or a billion

02:47

dollars Teo make a billion lines of code and operating

02:50

system or something like that Or you have to get

02:52

a government license like for a broadcaster to do it

02:54

or to build a bridge that takes tolls If that

02:57

can be private or maybe make a parking lot or

02:59

something you have to get the town's approval Your favorite

03:02

pet ferret Mr Pillows Bright then dies You loved him

03:06

You don't want a new fair If you want another

03:08

Mr Pillows bright so you decide to clone him well

03:11

There are three pet cloning companies to choose from Copy

03:15

Rover Ink Me Al Again Corp and Trans Jean rendering

03:19

Reina plaques limited You go with trans gene because well

03:23

they have the most scientific sounding name Unfortunately Mr Pillows

03:26

Bright the second comes back with no teeth and purple

03:29

for when you complain while the guy it trans gene

03:31

says Well you should see some of the monsters they

03:34

make over a copy Rover and yell again Consider yourself

03:37

lucky dude And obviously you're not happy with the results

03:40

but you don't have a lot of choice You're stuck

03:42

with the old leg op early so you decide you

03:44

want to break up the Oleg Awfully by starting a

03:46

new competitor A fourth player in the market problem one

03:50

that cost you Khun barely afford the special ferret food

03:53

for Mr Pillows Bright the second to gum at with

03:56

his you know toothless chewing A new cloning machine cost

03:59

millions of dollars high barrier to entry not unlike the

04:03

cell phone companies with both expensive cell towers they put

04:06

up and government approval they need or the operating systems

04:09

that makers have you know their products preloaded onto millions

04:13

of computers And yeah that doesn't work either So problem

04:16

number two starting your own pet cloning business Well government

04:19

regulation Minor detail Congress recently passed the Freedom and Truth

04:24

in Animal Cloning and Patriotic Apple Pie Act along with

04:28

raising taxes on apple pie and approving funds for a

04:30

new long reign stealth bomber The law requires all animal

04:34

cloning facilities to obtain a license from the FDA Well

04:39

copy Rover Miao again in Trans Jean All have licenses

04:42

already You don't Their lobbyists are now swarming around Washington

04:46

whispering all kinds of negative things about you to make

04:49

sure nobody else gets a license Yeah that's another barrier

04:52

to entry So those air all Oleg Op Elise now

04:55

onto holy gaap Sinese You've still got that bit of

04:59

Greek swimming around in your brain right You'll guess this

05:02

term represents another situation where a few companies are involved

05:06

while you're right there But in this case they aren't

05:08

selling They're buying And ola gops Any refers to a

05:12

situation where there are only a few buyers for a

05:15

product Like for those nude pictures you have of Warren

05:18

Buffett wrestling Bill Gates All right well in the real

05:20

world The classic example comes from the defense industry and

05:24

the aerospace industries Right If you build stealth bombers or

05:27

solid rocket boosters you really don't have a whole lot

05:30

of choices in who to sell to This guy might

05:33

be rich but he's not rich enough to buy a

05:35

stealth bomber and this guy might be really rich But

05:38

he's not rich enough for a rocket ship and all

05:41

right well maybe this guy is But generally the market

05:43

is very small for buyers of that kind of stuff

05:46

So you're basically selling to a couple of the Richard

05:48

governments in the world and the mostly really just the

05:50

US depending on whatever laws are in place that further

05:53

limit your options and selling your wares All right so

05:57

quick Review Olonga please Or a few companies that dominate

06:00

a market unlike a monopoly where just one he's usually

06:04

come up because of high costs of entry and or

06:06

some big skill and or some kind of government licensing

06:10

that's applied to make it hard for any competition to

06:12

come in The market works better than a monopoly for

06:15

the buyers but doesn't have the characteristics of a truly

06:18

competitive market like if there were eighty sellers and they

06:21

all competed vigorously for price Meanwhile Enola GAAP Sini involves

06:26

a market where there are only a few buyers Like

06:28

typically these air high cost items or items limited by

06:31

regulations Think defense military rockets all that kind of stuff

06:35

Yeah or could be items with a very very specific 00:06:39.093 --> [endTime] market No

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