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BILATERAL MONOPOLY / OLIGOPOLY

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Definition:
A bilateral monopoly/oligopoly is a situation where there is a single (or few) buyer(s) and seller(s) of a given product in a market. The level of concentration in the sale of purchase of the product results in a mutual inter-dependence between the seller(s) and buyer(s).

Context:
Under certain circumstances the buyer(s) can exercise countervailing power to constrain the market power of a single or few large sellers in the market and result in greater output and lower prices than would prevail under monopoly or oligopoly. This would particularly be the case when: the "upstream" supply of the product is elastic, i.e. fairly responsive to price changes and not subject to production bottlenecks; the buyers can substantially influence downwards the prices of monopolistic sellers because of the size of their purchases; and the buyers themselves are faced with price competition in the "downstream" markets (see vertical integration for discussion of terms upstream-downstream).

Such a situation is particularly likely in the case of purchase of an intermediate product. However, if the supply of the product upstream is restricted and there is no effective competition downstream, the bilateral monopoly/oligopoly may result in joint profit maximization between sellers-buyers to the detriment of consumers.

Source Publication:
Glossary of Industrial Organisation Economics and Competition Law, compiled by R. S. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.

Cross References:
Vertical integration

Statistical Theme: Financial statistics

Created on Thursday, January 03, 2002

Last updated on Thursday, March 28, 2013