A bilateral monopoly is a market structure in which a single seller and a single buyer purchase and sell factors of production (for the seller, these are finished products). Both the buyer and the seller have sufficient power to control the prices of factor services. Reflects the case of a bilateral monopoly. A monopsonist deals with a monopoly selling one of the factors of production. When a monopsonist meets a monopoly, the result is something like a battle of the titans. One can only speculate about the possible consequences for the participants. A situation of pure bilateral monopoly is rare. From time to time it occurs when a state monopoly company (for example, for tobacco, alcohol) purchases products from the only seller who is allowed to sell them in the country. This model can also be applied to trade union negotiations with employers' associations. An employers' association is an organization of employers of resource services who form a bargaining group to set wages to be paid by all members of the association. For example, the Bituminous Coal Owners Association is a national employers' association that deals primarily with two major unions, including the United Mine Workers. Another example is the Trucking Corporation, a national US trucking association that negotiates with the US Teamsters union. An employers' association, in order to maximize its profits, may try to set wages at w M. If the union does not agree to such wages, the firm may reduce operations and lay off workers. The union, although not seeking in any particular sense to maximize its profits, will demand that wages be fixed at w U, which is significantly higher w M, i.e. the salary offered by the employers' association. The union will be able to threaten a strike until its demands are met. If the difference between the wages demanded by the union and those offered by the employers' association is large, a prolonged strike or dismissal of workers may follow. The costs of strikes or layoffs to both employers and workers are likely to have an impact on reaching a compromise. This type of bilateral monopoly is also common in professional sports, where the team ownership organization negotiates with the players' union to negotiate pay and working conditions for the duration of the contract between them. For example, in the United States, the National Football League Players Association (NFLPA) negotiates with the National Football League Board of Governors, which represents team owners. When these two groups cannot agree on pay and working conditions, a strike is often the result. For example, in the fall of 1987, NFLPA players walked out when the two associations could not agree on pay and other issues - especially the rights of free agents to negotiate higher salaries. The NFLPA, whose members earned an average of $230,000 per season, sought to set the minimum pay for players at $90,000, with pay for players with 13 or more years of playing experience up to $320,000. This salary corresponds w U. The NFL Board of Governors is seeking to set the minimum pay at $60,000, allowing salaries of up to $180,000 for players with 13 years of experience and up to $200,000 for players with 15 years of experience. This salary corresponds w M. In addition, there were other controversial points regarding wages. Since no compromise agreement was ultimately reached, the players went on strike in the fall of 1987.
Bilateral monopoly.
ANSWER
BILATERAL MONOPOLY - a situation where there is only one seller (as in a monopoly) and one buyer (as in a monopsony) in the market.
A bilateral monopoly is understood as a market structure in which a single seller and a single buyer purchase and sell production resources (for the seller, these are finished products).
With a bilateral monopoly, both the buyer and the seller have sufficient capabilities to control the prices of services of production resources.
The case of a bilateral monopoly is shown in Fig. 40.1. Line S is the labor supply curve, indicating the price of this resource that must be paid in order to attract a certain volume of services from this resource. Since the firm buying the resource is a monopsony, it will seek to set the price at the level w M necessary to attract the volume of services of the resource corresponding to the intersection of the MIC curve with the curve of its MRP firm. Such an intersection occurs at point E 1; in which the firm wishes to hire E m units of services of this resource and will offer a price in the amount of w M monetary units per hour of resource services, i.e., the price necessary to attract E m units of resource services.
To maximize profits, a monopoly seller will try to set a price that will play the role of a stimulant in the purchase of the volume of resource services corresponding to the point where the marginal revenue from the sale of services from the resource sold is equal to the marginal costs of it. In this case, the profit-maximizing price will correspond to point E 2, where MR = MC. At this point the monopoly will want to sell L U units of resource services. In order to force the employer to limit the purchase of resource services to a given volume, the monopoly seller will strive to determine a price equal to w U .
Rice. 40.1. Bilateral monopoly
It is quite obvious that there is no equilibrium in this market, because w u > w M and L M< L U . По этой причине сделка не состоится до тех пор, пока не состоится договоренность о цене. По-видимому, цена установится на уровне между w U and wM.
A pure bilateral monopoly is quite rare. It occurs when a state monopoly company (for example, for alcohol) buys products from a single seller.
This type of bilateral monopoly is often seen in professional sports, where the team ownership organization negotiates with the players' union over pay and working conditions for the duration of the contract between them.
The effect of minimum price levels set either by trade unions or by the state in monopsony labor markets is significantly different from that which exists in competitive markets. Under free competition, wages above the equilibrium level will lead to an excess supply of labor. However, in a monopsony labor market this is rarely observed (Figure 40.2).
Rice. 40.2. Wages set by trade unions and hiring of workers by monopsony
Let's assume that all the firms in the city have created an employers' association and operate as a monopsony. Let's assume that the workers are not unionized. The monoposonistic cartel is in equilibrium at point E 1; where MRP L = MIC L . The S L curve represents the supply of workers' services. The cartel hires, say, 5 thousand workers per day and sets the workers' wages equal to 4 den. units at one o'clock.
Now suppose that the workers created a trade union and negotiations with entrepreneurs made it possible to increase wages from 4 to 8 deniers. units at one o'clock. In such a situation, entrepreneurs, as a rule, reduce the number of hired workers. But in a monopsony market, firms will hire more labor as long as the union wage is less than 13 deniers. units at one o'clock.
Firms can hire any amount of labor at wages set by the trade union, up to 8 den. units at one o'clock. If firms intend to hire more than 10,000 hours per day, they will have to increase wages to attract more labor. In this case, equilibrium will be established at point E 2, where MRP L will equal the wage offered by the union. The wage set by the trade union, which monopsonistic firms cannot influence, is for them up to 10 thousand hours of employment per day also the marginal cost of labor resources. An agreement with the company's trade union would allow the workforce to increase from 5 thousand to 7 thousand hours a day.
Setting any wage between 4 and 6 den. units per hour would lead to an increase in employment, since monopsonistic firms want an MRP L equal to this wage. But any wage set by the trade union below 6 den. units per hour, would cause a decrease in the supply of workers, which would allow wages to increase to 6 den. units
This model can be applied to government minimum wages. It is believed that, given the supply of unskilled labor in a monopsonistic market, the establishment of a minimum wage will cause an increase rather than a decrease in employment. As long as the government sets the minimum wage below the point at which MRP L = MIC L for monopsonists, once the minimum wage is set, they will employ more rather than fewer workers.
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When a firm has monopsony power as a buyer of labor, and a union has monopoly power in the market as a seller of labor, a bilateral monopoly exists in the labor market (Figure 12.11). In this situation, both the trade union and the company have the ability to influence the price of labor.
The firm's marginal revenue curve from labor MRP L from the point of view of the trade union - the seller of the resource, it represents the curve of the average income of the trade union from labor AR L . Conversely, the union's marginal labor cost curve MC L for a firm that purchases labor, it represents the average labor cost curve - ARC L(Fig. 12.11).
Rice. 12.11.w D) the buying firm determines from equality MRC l = MRP l . The trade union, calculating the labor supply price (w 5), equates MR L And M.C.L. If the powers of the monopolist and the monopsonist are equal, the price of labor may be close to the equilibrium level in a labor market with perfect competition.
In order to offer its wage rate in negotiations with the trade union - the price of demand for labor (vv D), the company-w/su- patel must first construct the marginal cost of labor curve MRC L which is located above the curve of average cost per factor ARC L. The buyer of labor must then construct the marginal revenue curve for labor MRP L . In order to obtain maximum profit, the firm must offer the union a wage rate (w^) such that the marginal return on labor equals the marginal cost of this factor. MRP L = MRC L. In this case, the monopsonist’s demand for labor will be equal to L D(see Fig. 12.11).
On the other hand, the trade union, calculating the labor supply price uA, which will bring it maximum benefit, must construct its marginal income curve from labor MR L, which lies below the average income curve AR L . This optimal labor supply price for the union will be the tariff rate IA, which corresponds to the equality of the marginal costs and the marginal income of the union MR L = MC L . In this case, the value of labor supply will be equal to /A
In the case of a bilateral monopoly, equilibrium cannot be established in the labor market, since the price of demand for labor is less than the price of its supply wD
In general, the result of negotiations between the entrepreneur and the trade union will be a wage rate that is between the demand price and the supply price w° and>*
The specific value of the wage rate (u>*), which will be fixed in the contract, depends on the balance of power of the contracting parties and is determined by many factors.
Firstly, the balance of power between entrepreneurs and hired workers is determined by the state of the economic situation. During an economic recovery, most likely concessions the company will go, and during a recession, the union will go.
Secondly, much depends on the market power that each of the negotiating parties has. For example, a situation where a firm that is an imperfect competitor in the labor market is opposed by a powerful trade union will differ from another situation when negotiations with the trade union are conducted by an association of entrepreneurs coordinating their tariff policy.
Third, negotiation skills on the part of employers and union leaders can seriously affect contract outcomes. The list of factors influencing the outcome of negotiations can be continued. If the powers of the monopolist and the monopsonist are equal, the parameters of the labor market may turn out to be close to the wage rate ( w*) and employment level (L*) perfect competition market (see Fig. 12.11).
- The market for goods can be either a market of perfect competition or a pure monopoly.
A market in which there is only one supplier and one buyer. One supplier will act as a monopoly power and will seek to charge high prices to one buyer. A single buyer will strive to pay as little price as possible. Since both sides have conflicting goals, both sides must negotiate based on the relative bargaining power of each, with the final price being set between both sides' maximum profit points.
PERMISSION “Bilateral monopoly”
Bilateral monopoly systems are most often used by economists to describe the labor markets of industrialized countries in the 1800s and early 20th century. Large companies will essentially monopolize all the jobs in one city and use their power to push wages down to lower levels. Workers, to increase their bargaining power, formed unions with the ability to strike and became equal forces at the bargaining table regarding wages paid.
As capitalism continued to flourish in the US and other countries, more companies competed for labor, and the power of a single company to dictate wages diminished significantly. Thus, the percentage of workers belonging to a union fell, while most new industries formed without the need for collective bargaining among workers.
Monopsony.
Along with monopoly on the part of producers (monopoly in the proper sense of the word), there is a monopoly on the part of the buyer - monopsony. The monopsonist buyer is interested and has the opportunity to buy goods at the lowest price.
This situation is typical for the military industry, the products of which are purchased exclusively by the state (this applies, first of all, to strategic weapons). However, the state does not always use this advantage. Much more often, monopsony advantage is realized in local markets. For example, the only enterprise in the region for processing agricultural products imposes monopolistically low procurement prices on farmers.
Rice. 74. Monopsony model
The equilibrium of a monopsonist firm, maximizing its profit, is achieved under the universal condition of equality of marginal revenue to marginal costs (MR = MC). If the slope of the supply curve is positive, then the marginal cost curve passes above it (Fig. 74). Then the monopsonist firm, using its power, will reduce the volume of purchases from the equilibrium level QE to QM, which will cause a decrease in price from PE to PM. Thus, the monopsonist’s costs for the purchase of products (as a rule, these are production resources) will be lower than in conditions of perfect competition.
Rice. 75. Map of indifference curves of a monopsonist buyer
Bilateral monopoly.
A bilateral monopoly is a market structure where a monopolist is opposed by a monopsonist (a single seller faces a single buyer). This is observed, in particular, when a monopolist firm negotiates with an industry union over the hiring of workers (the purchase and sale of labor). An example is the clash between the air traffic controllers union and the national aviation company.
To consider the bilateral monopoly model, we use a map of indifference curves. Let's assume that one of the monopolists is a seller of goods (resources), and the other is a buyer (owner of money). Let's plot the number of goods on the x-axis, and on the y-axis - the amount of money intended to pay for them (Fig. 75). Indifference curves in this case will be identical to constant profitability curves.
Similarly, we will construct maps of indifference curves (constant profitability) for the seller. Let's superimpose these maps in mirror image to each other so that the buyer's coordinate system begins in the lower left corner, and the seller's in the upper right (Fig. 76). As a result, we get an "Edgeworth box".
Rice. 76. Bilateral monopoly
The region of feasible solutions will be a shaded figure bounded by curves C1 and S1. However, the optimal solutions will be on the transaction curve TT" (from transaction - transaction), combining points T1, T2, T3, T4, etc., which are the tangent points of curves C and S. Any shift along the transaction curve TT" means a win one side and damage to the other. Therefore, the problem of bilateral monopoly does not have a clear solution. In practice, the strongest wins.