The increase in the expenditure of the buyer (his marginal outlay or marginal expenditure) caused by the increases in his purchases is shown by the curve ME in figure 6.19. The MC (= S) curve is determined by conditions outside the control of the buyer, and it shows the quantity that the monopolist-seller is willing to supply at various prices. What are the monopsonist’s price terms? Clearly the MC curve of the producer represents the supply curve to the buyer: the upward slope of this curve shows that as the monopsonist increases his purchases the price he will have to pay rises. The buyer is aware of his power, and, being a profit maximiser, he would like to impose his own price terms to the producer. The producer-monopolist is selling to a single buyer who can obviously affect the market price by his purchasing decisions. However, the producer cannot attain the above profit-maximizing position, because he does not sell in a market with many buyers, each of whom would be unable to affect the price by his purchases. He would maximize his profit if he were to produce X 1 quantity of equipment and sell it at the price P 1. The equilibrium of the producer- monopolist is defined by the intersection of his marginal revenue and marginal cost curves (point e 1 in figure 6.19). Both firms are assumed to aim at the maximization of their profit. To illustrate a situation of bilateral monopoly assume that all railway equipment is produced by a single firm and is bought by a single buyer, British Rail. Under conditions of bilateral monopoly economic analysis leads to indeterminacy which is finally resolved by exogenous factors. The precise level of the price (and output), however, will ultimately be defined by non-economic factors, such as the bargaining power, skill and other strategies of the participant firms. Economic analysis can only define the range within which the price will eventually be settled. The equilibrium in such a market cannot be determined by the traditional tools of demand and supply. For example, if a single firm produced all the copper in a country and if only one firm used this metal, the copper market would be a bilateral monopoly market. The Free Press.Bilateral monopoly is a market consisting of a single seller (monopolist) and a single buyer (monopsonist). Markets and hierarchies: Analysis and antitrust implications. Perfect equilibrium in a bargaining model. Bilateral monopoly, successive monopoly, and vertical integration. Evidence of general economic principles of bargaining and trade from 2000 classroom experiments. Review of Industrial Organization, Forthcoming Presumptions in Vertical Mergers: The Role of Evidence. Journal of Economic Literature, 45(3), 629–685. Vertical integration and firm boundaries: The evidence. Anticompetitive exclusion: Raising rivals’ costs to achieve power over price. ĭepartment of Justice & Federal Trade Commission (2020). Journal of Law and Economics, 15(1), 143–149.ĭepartment of Justice & Federal Trade Commission (2010). Managerial and Decision Economics, 36(1), 33–43.īlair, R. Formula pricing and profit sharing in inter-firm contracts. A pedagogical treatment of bilateral monopoly. A note on bilateral monopoly and formula price contracts. University of Florida Law Review, 33(4), 461–484.īlair, R. The Albrecht rule and consumer welfare: An economic analysis. Sokol (Eds.), Oxford handbook of international antitrust economics (Vol. Bilateral monopoly: economic analysis and antitrust policy. Review of Industrial Organization, Forthcoming.īlair, R. Evaluating the Evidence on Vertical Mergers.
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