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The models of factor market power we’ve looked at in this chapter, whether that power is exercised on the seller’s or buyer’s side, are extremely useful when one side of the market is concentrated or particularly powerful, and the competitive model’s assumptions that factor buyers or sellers are price takers are unlikely to apply.

There are many markets, though, where even the one-sided market power models don’t fit the situation well. These are markets in which both the supply and demand sides are concentrated. For example, consider the automobile industry. Each of the small number of giant automakers accounts for billions of dollars in sales, and that probably means each company has some monopsony power over its suppliers. On the other hand, four mega-suppliers of tires—Goodyear, Michelin, Cooper, and Bridgestone—account for the vast majority of tire sales. These firms almost surely have some market power on the supply side of this market.

The market structure that exists when there is a major concentration of market power on both sides of the market is called a bilateral monopoly. (“Monopoly-monopsony” is probably a more accurate term, but no one uses it.) Our models of market power above assume that only one side of the market has pricing power. In the case of bilateral monopoly, there is no single, obvious model to use for figuring out what will happen in a factor market or what either party should do. It could be anything between the monopoly outcome and the monopsony outcome, and that’s a large range indeed. What happens in these situations comes down to negotiation and bargaining power. The game theory tools we learned in Chapter 12 can be helpful to predict outcomes in such situations.