Bilateral monopoly

A bilateral monopoly is a market structure consisting of both a monopoly (a single seller) and a monopsony (a single buyer).

Overview

Bilateral monopoly situations are typically analyzed using the theory of Nash bargaining games, and market price and output will be determined by forces like bargaining power of both buyer and seller. A bilateral monopoly model is often used in situations where the switching costs of both sides are prohibitively high.

Examples

• An example of a bilateral monopoly would be when a labor union (a monopolist in the supply of labor) faces a single large employer in a factory town (a monopsonist).

• A peculiar one exists in the market for nuclear-powered aircraft carriers in the United States, where the buyer (the United States Navy) is the only one demanding the product, and there is only one seller (Huntington Ingalls Industries) by stipulation of the regulations promulgated by the buyer's parent organization (the United States Department of Defense, which has thus far not licensed any other firm to manufacture, overhaul, or decommission nuclear-powered aircraft carriers).

See also

• Industrial organization
• New institutional economics
• Transaction cost