A bilateral monopoly is characterized by a market with a single buyer and a single seller. Which factor is most likely to determine the market outcome in this situation?
A) Share of total costs that are fixed
B) Degree of demand elasticity
C) Degree of supply elasticity
D) Bargaining power of the firms

Question

Quizplus · Accepted Answer

In a bilateral monopoly, the market outcome is largely determined by the bargaining power of the firms. The single buyer and single seller must negotiate to reach an agreement on the price and quantity of the good or service being exchanged. The greater the bargaining power of one firm versus the other, the more likely that firm is to secure favorable terms in the negotiation. Therefore, the bargaining power of the firms is the most important factor in determining the outcome of a bilateral monopoly. Factors such as the share of total costs that are fixed, degree of demand elasticity, and degree of supply elasticity may still be important, but they are secondary to the bargaining power of the firms.

A Bilateral Monopoly Is Characterized by a Market with a Single