Question

Explain bilateral monopoly.

Answer 1

A bilateral monopoly is a market situation where there is only one seller (a monopolist) and only one buyer (a monopsonist) for a particular product or service.

1. Single Seller (Monopoly): The firm has control over the supply of the product.
2. Single Buyer (Monopsony): The buyer controls the demand.
3. Mutual Interdependence: Neither side can set the price unilaterally. Price and quantity are determined through negotiation or bargaining between the seller and buyer.
4. Examples:
   • A government defence department (sole buyer) purchasing fighter jets from a single aerospace manufacturer (sole seller).
   • A labour union (sole seller of labour) negotiating wages with a single employer (sole buyer of that labour type).