Though wages under bilateral monopoly are logically indeterminate, some wage rate is actually established in such market situations. Explain those economic and noneconomic factors that might be pertinent to the establishment of this wage
What will be an ideal response?
The economic factors set the limits for both sides. The monopsonistic employer would prefer to pay a wage below the competitive equilibrium rate that would exist in a purely competitive market. The union, a monopolistic “seller” of labor, will seek a wage above the competitive equilibrium wage. The outcome will depend on the relative power of the two sides.
Also, the state of the macro economy has an effect on the bargaining power of the two sides. When the economy is near full-employment, labor markets are “tight” and unions tend to have more power. When the economy is in recession, management tends to have more strength.
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