Bilateral monopoly:
A bilateral monopoly is said to exist when one producer has an output monopoly and there is only one buyer for the product. The following table will help you to understand the concepts of perfect competition, monopoly and bilateral monopoly.
![1605_Bilateral monopoly.png](https://www.expertsmind.com/CMSImages/1605_Bilateral%20monopoly.png)
Since there is only one demander and one seller, the price and quantity will be determined by negotiation. However, we can always find the upper and lower limits of price and quantities. We will consider the single seller as all powerful and the single buyer as all powerful, alternatively. The situation is described by the following figure.
DD is the demand curve and MR is the marginal revenue curve. MCS is the marginal cost curve of the single seller. If the monopolist seller is all powerful, she will make the buyer behave as if there were many buyers. She will equate MCS to MR and will produce XS and will charge price Ps.
However, if the single buyers is the all powerful, she can make the monopolist behave like a perfect competitor. Thus, the MCS would be the supply curve of the monopolist. Corresponding to this supply curve, we can construct the MCB curve, which shows the marginal cost of buying an additional unit. MCB exceeds the price because in order to purchase an additional unit, the buyer must pay a price and that higher price must pertain to all the units purchased.
The buyer equates her marginal cost of buying an additional unit with the marginal value of an additional unit (as given by the demand curve) and purchases XB amount. Since the seller is behaving like a competitor with supply curve MCs, she will sell the XB units at per unit price PB. The actual solution for the bilateral monopoly problem is indeterminate, depending on the bargaining power of the seller and the buyer.