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Bilateral Monopoly
Suppose a union has negotiated a closed-shop arrangement (in a country
where such arrangements are legal) with an employer that possesses
monopsony power in its labor market. The union has a kind of monopoly
in the supply of labor. A situation in which a monopsony buyer faces a
monopoly seller is called bilateral monopoly. Wages in this model are
indeterminate, with the actual wage falling somewhere between the pure
monopoly and pure monopsony outcomes.
Figure 14.12Bilateral Monopoly
If the union has monopoly power over the supply of labor and faces a
monopsony purchaser of the labor the union represents, the wage negotiated
between the two will be indeterminate. The employer will hire Lmunits of the
labor per period. The employer wants a wage Wm on the supply curve S. The
union will seek a wage close to the maximum the employer would be willing
to pay for this quantity, Wu, at the intersection of the marginal revenue
product (MRP) and the marginal factor cost (MFC) curves. The actual wage
will be somewhere between these two amounts.
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
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