What Is a Bilateral Monopoly?

A bilateral monopoly exists when a market has only one supplier and one buyer. The one supplier will tend to act as a monopoly po🍨wer and look to charge high prices to the one buyer. The lone buyer will look towards paying a price that is as low as possible. Since both parties have conflicting goals, the two sides must negotiate based on the relative bargaining power of each, with a final price settling between the two sides' points of maximum profit.

This climate can exist whenever there is a small contained market, which limits the number of players, or when there are multiple players but the costs to switch♊ buyers or sellers are prohibitively expensive.

Understanding Bilateral Monopolies

Bilateral monopoly systems have most commonly been used by economists to describe the labor markets of industrialized nations in the 1800s and the early 20th century.

Large companies would essentially monopolize all the jobs in a single town and use their power to drive wages to lower levels. To increase their bargaining power, workers formed 澳洲幸运5官方开奖结果体彩网:labor unions with the abi𓆉lity to strike and became an equal force at the bargaining table with regard to wages paid.

As capitalism continued to thrive in the U.S. and elsewhere, more companies were competing for the labor force, and the power of a single company to dictate wages decreased substantially. As such, the percentage of workers who are members of a union has fallen, while most new industries have formed without the need for 澳洲幸运5官方开奖结果体彩网:collective bargaining groups among workers.

A bilateral monopoly requires the seller and the buꦐyer, who have diametrically opposite interests, to achieve a balance of their interests. The buyer seeks to buy cheap, and the seller tries to sell expensive. The key to a successful business for both is reaching a balance of inte🔯rests reflected in a “win-win” model. At the same time, both the seller and the buyer are well aware of who they are dealing with.

Disadvantages of Bilateral Monopolies

Problems arise when neither party can determine the conditions of the sale, and the negotiation goes beyond what is permissible. For example, instead of fair negotiation and exchanging draft contracts, the buyer and seller abuse their rights: they stop shipping goods, impose unprofitable and discriminatory conditions, send false information to each other, etc. This creates uncertainty and threatens t🧸he entire market.

A common type of bilateral monopoly occurs when there is a single larg𒐪e employer in a factory town, where its demand for labor is the only significant one in the city, and a well-organized and strong trade union manages thꦇe labor supply.

In such situations, the employer has no supply function that adequately describ🌳es the relationship between supply volume and product price. Therefore, the company must arbitrarily select a point on the market demand curve that maximizes its profit. The problem is that businesses in this situation are the only buyers of a monopolized product.

Consequently, its demand function for production resources is eliminated. Thus, the business must also choose a point on the seller’s supply curve to maximize its p⛄rofit.

The Bottom Line

Bilateral monopolies exist when there is only one seller and one buyer. In this setup, both parties have to agree on a price that works for both, even if the agreements aren't ideal. This is to ensure the smooth continuation of business without disruptions.

Historically, this occurred in small industrial towns where one company employed a large part of the population. Both the company and the empl𒈔oyees would need to agree on wages, hours, and benefits.