Explain how a bilateral monopoly equilibrium outcome differs from a purely competitive outcome

Answer 1

In pure competition, there are so many sellers and buyers that each is too small to affect the price and quantity of the product. However, in the case of bilateral monopoly, the size of the parties matters. Neither is likely to passively accept the price or quantity as a given, and each is likely to actively pursue goals and adopt strategies to attain these goals. Therefore, the outcome of bilateral monopoly cannot be predicted in advance unless the goals of the parties are clearly specified. In general terms, most economists suggest that the presence of a union forces employers to pay higher wages than otherwise and perhaps induce the firm to increase employment above what it might otherwise choose.