Question

How does a bilateral monopoly affect the equilibrium wage and employment levels compared to a perfectly competitive labor market?

Short answer

A bilateral monopoly will have higher employment levels and equilibrium wages than in a perfectly competitive marketplace.

Step-by-step solution

Definition

Bilateral Monopoly: A bilateral monopoly exists when there's only one producer and one consumer in a market. This creates an uneasy balance in power, as both have supreme control over what the other receives. The power is given to the one willing to outlast the other in negotiation, a common example of this is Union negotiations.

Step 2:Explanation

In a bilateral monopoly, the amount of labor used would be decided by negotiations between consumer and supplier, the power balance may vary. The wage and employment levels will settle at a midpoint between the firm's profit-maximizing level and the consumer's utility-maximizing level. This point isn't necessarily efficient for the market, however, it may provide better utility for workers as they have more market power than a competitive labor market.
A common example of this is labor unions. There is one employer and one collective group of labor, this puts more power in the labor group bargaining than individuals under competition.

Conclusion

Therefore, during a bilateral monopoly, employment level and equilibrium wage are higher than in a competitive labor market.