The Theory of Concentration Oligopoly

Abstract

This paper originates the theory of buyer concentration for a main raw material input for a single processing industry. The Oligopsony concentration is obtained and subsequently decomposed into several factors, affecting indirectly the industry's profitability. It is found that the leading firms' efficiencies hypothesis is reaffirmed due to variations associated with the marginal productivity differentials. This finding is based on concentration separation approach rather than analyzing the cost-efficiency effect against market power effect from increasing concentration on the industry's markup, provided by structural approach of minimum cost function.