A bilateral monopoly is a market in which there is only one buyer and only one seller. Unlike a monopoly (a market with one seller) or a monopsony (a market with one buyer), the existence of market power does not necessarily cause above-normal profits to go to the monopolist/monopsonist. A bilateral monopoly causes the market power of each player to some degree to cancel out the other's.
A monopolist seller
A monopoly is a market in which there is a single seller of a good or service. By virtue of being the only seller, the monopolist can and will charge more than in a competitive market. Monopolies are generally not permitted, though some regulated monopolies (particularly utilities) are permitted. A monopoly can be broken under the antitrust laws of the United States. There is a large section of the U.S. Justice Department devoted to antitrust law.
A monopsonist buyer
A monopsonist is a single buyer in a market, who by virtue of being the only buyer gets lower-than-market prices. Monopsonies, like monopolies, are not generally permitted under U.S. antitrust laws. However, like monopolies, there can be exceptions created under law for regulated entities and even more specific exemptions, such as the one for Major League Baseball created by Congress.
Effects of a bilateral monopolies
A bilateral monopoly does not allocate resources as efficiently as a purely competitive market. However, it is closer to being efficient than a pure monopoly or pure monopsony. A bilateral monopoly causes lower prices than a monopoly and higher prices than under a monopsony. Likewise, it results in a larger quantity of goods than a monopoly but less than under a monopsony.
Examples of bilateral monopolies
Specialized labor and organized labor often create bilateral monopolies. An easy example are professional athletes who are members of players unions. The players union is the only supply of labor for the sports league (e.g., MLB, NFL, NBA) so it is a monopoly. Likewise, the sports league is the dominant buyer of the players' services, so it is a monopsonist.
Setting prices in a bilateral monopoly
The prices and quantities of goods and services in a bilateral monopoly are often the result of negotiations between the monopolist and the monopsonist. Professional football offers a useful illustration. The National Football League and the NFL Players Association set limits on the minimum salary that players can receive, salary caps on the totals spent by teams, the number of players on a single team's roster, etc. In so doing, they reach a middle ground between the results that the NFL would want as a buyer and the Players' Association would want as a seller.
Tags: bilateral monopoly, bilateral monopolies, monopoly market, antitrust laws, being only, bilateral monopoly causes
