A bilateral monopoly occurs in a market where there is only one buyer and one seller, creating a unique dynamic between the two parties. This situation can be understood by combining concepts from monopsonies, where a single buyer dominates the market, and labor unions, which represent a collective of workers negotiating for better wages and conditions. In this context, the labor union acts as the sole seller of unionized labor, while the monopsony represents the single buyer of that labor.

A practical example of a bilateral monopoly is the Writers Guild of America, which represents television writers. The guild negotiates with an alliance of employers, such as CBS and NBC, who collectively purchase the labor of the writers. This negotiation occurs every three years, focusing on determining the wages for the writers. The outcome of these negotiations is influenced by the relative bargaining power of both the labor union and the employer alliance.

In a bilateral monopoly, the employer typically aims to pay below-average wages, leveraging their position as the sole buyer, while the labor union strives for above-average wages for its members. This creates a negotiation struggle where both parties must find a middle ground. The wage outcomes are uncertain and depend heavily on the negotiation process, which can lead to an unknown equilibrium wage and quantity of labor exchanged.

Graphically, this situation can be represented with a demand curve for labor and a supply curve from the labor union. The labor union advocates for a high wage (denoted as \( w_h \)), while the monopsony seeks a low wage (denoted as \( w_l \)). The final wage is likely to settle somewhere between these two extremes, depending on the negotiating strengths of both parties.

One significant aspect of a bilateral monopoly is that the monopolistic powers of both parties tend to balance each other out. Since both the buyer and seller need each other, their negotiating powers can lead to outcomes that are more competitive than if either party had unilateral control. If their negotiating powers are roughly equal, they may even arrive at a wage that reflects competitive market conditions.

In summary, while the exact outcomes of a bilateral monopoly can vary, the negotiation process is central to determining wages and labor conditions. The presence of both a monopsony and a labor union can lead to more favorable and competitive results compared to scenarios where one party holds all the power, ultimately benefiting the market as a whole.