A Flexible Oligopoly-Oligopsony Model for Classroom Simulations and Policy Analyses

We present a flexible model of a vertical market where firms with possible oligopsony power procure a key input, combine it with other inputs purchased competitively, and sell a final product to consumers in a market that may have oligopoly power. The model is capable of depicting all forms of market power ranging from perfect competition to pure monopoly/monopsony. A linear version of the model depicts market equilibrium in terms of only five parameters. The model is useful in teaching undergraduate students about the impacts of market power in classes such as microeconomics, industrial organization, and regulation. An accompanying Excel spreadsheet enables instructors to conduct in-class illustrations and students to utilize the model to perform various problem solving and policy analyses.