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Markets for the Factors of Production

Bilateral Monopoly


Bilateral Monopoly

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Alright now let's discuss the situation where there's only one buyer and one seller in the market. Let's check it out. A bilateral monopoly. So we're gonna take what we've discussed in the previous couple of topics. We've discussed labor unions and monopolies. So we're gonna combine them together. A monopoly, any where there's only one. So excuse me, only one buyer in a market, right? A market with only one buyer and a labor union. So we could think of the labor union as pooling all of the resources together and selling just uh unionized labor. So the only thing you can buy is unionized labor and there's only one person buying it, the buyer of the monotony. So this is a market with a single buyer and seller. So there's only one buyer and one seller. It's kind of rare. But it does come up a good example is the Writers guild of America. So this is a union, a labor union here. This is basically tv show writers, they joined the Writers guild of America and they negotiate with an employer's alliance. So now all the employers cBS MGm NBC. They make an alliance as well where they're going to purchase the labor of the writers guild. Right? So what are they gonna do? They're gonna negotiate the labor union is gonna with this monopoly? This employer alliance. So the only people who are buying is the alliance and the only people who are selling is the union, right? The alliance and the union kind of funny there. So this is a real world example. And every three years they're gonna negotiate the two parties renegotiate a pay deal. How much are the writers gonna make, right? And this is obviously a very intense negotiation between the labor union and the the employers alliance there. So it's not very simple to say what the outcome of a bilateral monopoly is, because it all comes down to the negotiating power of both of the groups, It leads to heavy negotiation. And what what are the goals of both groups? The employers want to pay a below average wage, because they're the monotony, right? They're the ones hiring, they want to pay as little as possible for the employers for the employees, and the employees want the above average wage that a union gets right, The unions fight for higher wages, and the monotony fights for lower wages. So, what ends up happening is a big negotiation struggle between the two parties. So what happens in a bilateral monopoly? We could say that we've got two things here, if this looks similar to the monopoly graph that we dealt with, so we're gonna have our our demand for labor here, our supply of labor here, And what we'll say is that this is the the wage that the labor union fights for up here, the labor union fights for this high wage. So, I'll put w H. For high wage, while the monopoly money is fighting for this low wage down here, right? So this is the low wage that the monopoly is fighting for. So what's gonna happen, they're gonna, they're both gonna be negotiating and they're gonna end up somewhere in the middle, probably, right, They'll probably end up at somewhere in the middle of these two. So what's, what's, what is the outcome? We really can't say it's going to result in an unknown wage and an unknown equilibrium quantity. We're not really sure what's going to happen because it all comes down to the negotiation process. So, is it desirable to have this bilateral monopoly? Well, there are some conclusions that we can make first. We know that the monopolies, they're gonna cancel each other out right, since they both have this negotiating power. Well, it's not like one has more influence than the other because they both need each other equally, um, and their, their monopoly power, that leverage that they would have had, doesn't exist anymore. So it leads to near competitive results where they both need each other enough that it ends up being competitive. And if the negotiation power is roughly the same for both parties, they might actually agree on the competitive wage. So if we go back up to our graph, if the negotiating power was approximately equal, we might say, you know, they might end up anywhere on this, on this spectrum, they might end up way down here. If the monopoly has a lot of power, they may end up way up here. If the union has a lot of power, but they would likely end up somewhere in the middle, and if they have, um, equal negotiating power, they might end up right at the equilibrium right here in the middle, and we might actually have an equilibrium situation based on the negotiating power of the two groups. Okay, so even if we don't exactly end up there, even if we end up, maybe right here, it's better than one group having all the power, right, uh, it's gonna give us more competitive results than just one group having the power. And that's our last point here. The results are at a minimum more desirable than if just there was just a monopoly. Any or just the labor union. We still get a more competitive situation um, in the bilateral monopoly than in just one of the two situations. Cool. So, bilateral monopoly, big topic. There is the negotiation process, right? There's a lot of negotiation, because all of the negotiating power has been consolidated into these two groups. The employer that's hiring, and the employee that's selling and that's all. There is. Just one of each of them. Cool, Alright, let's go ahead and move on to the next topic.