 We will start our discussion today with the bilateral monopoly. So, if you remember in the previous session, we talked about a market form which is known as monospony and it is in the other side, it is not on the basis of the seller, it is on the basis of the single buyers and this form of market is known as monospony because there is only one buyer and there are number of sellers into that. Now, we will take a situation where there is only single buyer and single seller. How generally this price and output determination is done or maybe how this equilibrium price is obtained because there is a single seller, single buyers who influences the price more, who decides the output more that we will discuss in case of a bilateral monopoly. So, bilateral monopoly is one where there is a single seller and single buyer. So, we can call it a labor union like a monopoly operates in a monospony labor market and that is a typical example of a bilateral monopoly when the union act as a monopoly seller face a monospony buyer that is the one single plant who generally employ all the laborers from this union they becomes the buyer of this. So, seller is the labor union that is single seller and buyer is the single plant or single industry who generally gives employment to the labor from the labor union. So, bilateral monopoly is a market with single seller and single buyer. Typical example like a labor union like monopoly operates in a monospony labor market and when the union that is monopolist faces the monospony that is single large industry or single large plant who employs them it is generally the case of a bilateral monopoly. Generally we find the evidence of bilateral monopoly in case of a labor market because that can only we can organize into the monospony buyer and the monopoly seller. So, wage rate determination is generally in this case how the wage rate is decided the wage rate determination is by collective bargaining through the union of worker and the employer it is not strictly on the basis of the demand and supply because there is a single seller and single buyer. So, the evidence in the wage rate is decided by collective bargaining through the union of worker and the employer. This shows that if someone is having a more bargaining strength they generally influence price or the wage rate more as compared to the other. But ideally if you look at the monopolist depend on monosponist to generally maximize the profit and monosponist depends on monopolist to maximizing their profit. As you know that monopolist has no supply curve there is a absence of supply curve means the monopoly. So, there is no supply function and generally the monopolist select a point from the buyers demand curve which maximizes the profit. There is no supply curve for monopolist and to maximize the profit generally they select a point from the buyers demand curve. And similarly from a monosponist point of view also there is no demand curve there is a absent of demand curve in the monosony market and they select a point on his seller supply function which maximizes the profit. So, one is in case of monopolist there is no supply function to maximize the profit they select a point from the buyers demand function. And in case of monospony there is no demand function there is no demand function and in order to maximize the profit they select a point from the seller supply function and maximize the profit. So, if you look at there is a interdependence when it comes to maximize the profit only monopolist or only monosponist influencing the price and output decision they cannot maximize the profit and it is not possible also to independently influence the price and output. So, it is not possible for the sellers to behave as a monopolist in this kind of market and not possible also for the buyers to monosponist at the same time. Seller cannot exploit the demand curve and buyers cannot exploit the supply curve which does not exist and which leads to a few situation. So, for the seller there is no demand curve as it is a case of a monosponist market and that is the reason they cannot exploit the demand curve. Buyers since there is a absence of supply curve for the monopolist they cannot also exploit the supply curve. So, there is there is there is absence of a situation where seller is exploiting the demand curve and buyer is exploiting the supply curve and that leads to few kind of situation which we can summarize. Firstly, it may happen that one of the participants either monopolist or monoponist may dominate and force the other to accept his price and quantity decision. So, it may happen that either monopolist will force the monosponist to accept his price and quantity decision or monosponist will force the monopolist to accept his price and quantity decision. Secondly, the buyers and sellers may collude or bargain to set the price and quantity. They can come to a collusion and they bargain to set the price and quantity. So, they will form a collusion they come to a collusion and on the depend upon their bargaining strength they bargain to set the price and quantity according to their own choice. And thirdly, if no one is able to dominate or the collusion is not taking place the market mechanism breakdown and it may not exist as a bilateral monopoly. So, case one, one may dominate other has to follow. Second both of them come to a collusion and they set their price and quantity on the basis of the bargaining. And third one when the market mechanism will breakdown if none of this above two are possible. Now, how the equilibrium takes place in case of a bilateral monopoly? Equilibrium cannot be determined by the traditional tools because there is absence of the demand curve in case of a monosponist and there is a absence of a supply curve in case of a monopolist. So, since demand curve and supply curve is absent for the buyers and sellers, equilibrium cannot be determined by the traditional tool that is the typical demand supply or profit maximization cannot take place through the marginal revenue and marginal cost on the basis of the price determined by the demand and supply. So, here the economic factors like bargaining power, negotiating skill or other strategy like how to influence the or how to force the other party play an important role in the determination of price. So, more to do with the non economic factor like bargaining power and negotiating skill when it comes to price and output. So, if it is more bargaining strength or more negotiating strength, the price and quantity goes in their favour. We will understand this equilibrium in a graphical format that how the equilibrium takes place in case of a bilateral monopoly. In this kind of market like typical monopoly market we will get our average revenue, we will get our marginal revenue, we will get the marginal cost, we will get the marginal expenditure. So, monopolist equilibrium if you look at it is a point where marginal cost is equal to the marginal revenue and we get the corresponding monopoly price. We can call it a monopoly price, producer cannot be the price maker as there is a single buyer. So, PM even if it is a monopolist price and how we got this monopolist price through the MC MR rule and through that we got the price to be PM and quantity is QM. But producer cannot be the price maker as there is a single buyer. So, there we introduce the supply curve of buyer that is MC and MC is what MC is the supply for the buyers. This is the supply curve of the buyer and marginal is equal to the P and the buyer will purchase additional Q to maximize the profit till the time this marginal expenditure is equal to P. So, the buyer will go on producing the additional or go on purchasing the additional Q to maximize the profit till the time ME is equal to P. So, monopolist equilibrium will be at the point E 2 and which one is point E 2 over here, E 2 is the point where ME is equal to P and ME is equal to P at this point E 2. So, E 2 is the point where corresponding to that we get the price which is equal to P 2 and how to find out the price over here, the price is P 2 and correspondingly we get a price that is P 2. Now we have E 2, we have corresponding to this, we have this is the monopolist equilibrium point, this is the monopolist point, this is the monopolist equilibrium point and corresponding to E 2 we get price E 2 and how we get this price E 2 whether this has to be the price or may be corresponding to this we get a point where in the MC curve because if you look at MC is the again deciding point here, we get one more price level here or we can call it may be we can call it P star. So, now what is the ideal level here? Ideal level is may be this is the monopolist price because this is the point corresponding to this where we get is equal to the MC, this is the monopolist price and always the through bargaining neither they will accept this PM nor they will accept this P star because this is the level of price what we are what they will propose now which is between this PM and P star. This is the monopolist price, this is the monopolist price and they will device a price between PM and P star whether it is P 2 or any other price because that will be decided through the market or this will be decided through the bargaining strength of both the buyers and seller that they has to charge a price which is between the monopoly price and the monopolist price. So, generally now how we get all these three price point? Point one with respect to the monopoly price that is PM that is through MC MR rule and how we get this P star? P star we get through this is the supply curve of the buyer and if you remember in case of the in case of monopolist always the P has to be equal to the marginal cost or they have to pay the price with respect to the supply of the input. So, in the first case we just identified the point where till the which time the quantity level has to be produced and that is Q star and how we get this quantity level? We guess the quantity level where ME is equal to P and after identifying the quantity level P 2 E 2 will then find out what is the price and to find the price we need to pick a point corresponding to this output level where this is equal to the MC and that is the reason we get the P star as the monopolist price. Now what is the level of output? Now maybe there is one more suggestion if this is P 2 there is one more suggestion may also come where the competitive price that is P 2 that is MC is equal to P this is the competitive price. So, maybe they can also zero down on a price P 1 which is between P star and PM and that decides on the basis of the bargaining strength of the monopolist and the bargaining strength of the monoponist. So, between PM and P star they can pick up a price P 1, P 2 or the number of other options over here are decided on their bargaining strength which brings some amount of the profit to both the buyers and seller. So, typically in the bilateral monopoly since single seller and single buyer no one will influence the price and quantity either one has to dominate which is not appearing when we are deciding it in the graphically because the monopolist price is not accepted to the monoponist and the monoponist price is not accepted to the monopolist. So, in this case they will try to come to a price between the price PM and P star which will give some amount of the profit through their bargaining and through their collusion. So, this talks about a second situation where ideally the price is decided on the basis of the bargaining strength of both the buyers and sellers. Then well since we have discussed so many types of monopoly we have discussed different aspect of monopoly and previously we have also discussed about the perfect competitive market structure. We will come to a comparative studies between the perfect competition and the monopoly how these two markets different from each other. So, when it comes to the goal of the firm in both these cases the goal of the firm is the profit maximization whether it is a case of perfect competition whether it case of a monopolist both the case the goal of the firm is to maximize the profit and there is no separation of ownership and the management. So, the there is no difference between the ownership and management and profit maximization of the goal of the firm which is uniform as a characteristic or feature to the both the type of market that is perfect competition and the monopoly. When it comes to assumption in if you look at there is a difference in the assumption that is taken by the perfect competitive market structure and the monopoly market structure. When it comes to product since there is a single product in case of monopoly it has to be uniform there is no close substitute whereas, in case of a perfect competition it is a homogeneous product which similar or the similar product and all the products are closely substitute to each other. Similarly, the number of sellers and buyer in case of monopoly the number of seller is 1 there are large number of buyers, but in case of perfect competitive market structure the number of there are large number of sellers and buyers entry condition in case of perfect competition there is free entry and free exit whereas, in case of monopoly there is entry barrier, but the exit is if you are incurring a loss over there. Then in case of cost condition we have analyzed the perfect competitive market structure typically in case of supply curve of the perfect competitive market structure in three different cost that is cost and cost increasing cost and decreasing cost that we have not analyzed through monopoly, but in general the cost condition if you look at the monopolist is not not conscious about the cost condition because since they have they can also influence the price and if the cost goes on a higher side they can always justify and they can charge a higher price because since they are the price maker. But in case of perfect competitive market since the price is decided by the market forces they will always try to reduce the cost of production so that the profit can be more because whenever there is a increasing cost of production they are not charging a higher price because price is decided by the market power. Nevertheless it is not that the monopolist never try to reduce the cost, but at least when they have they are the price taker if in case there is a increasing in the cost function at least they can increase the price to at least supplement the increase in the cost of the production or that they can get it through the from the buyers or the increase in the cost they can pass to the buyer in the form of increase in the cost of production or increase in the price. Then when it comes to behavioural rules of the firm the shape of the demand curve in case of the monopolistic firm is downward sloping the regular demand curve, but in case of a perfect competitive market if you look at it is horizontal because there is no change in the price at the same price whatever the buyer is willing to buy they can buy and how much the seller is willing to seller they can sell. But in case of monopolist the shape of demand is demand curve is downward sloping and even whenever he has to increase the price, whenever he has to increase the quantity demanded he has to reduce the price to increase the quantity demanded. So, the shape of the demand is depends upon the price and quantity relationship in case of a perfect competitive market structure and the monopoly market structure. Then the atmospheric behaviour of the independence that is present in case of a monopolist firm, but that is absence in case of a in case of a perfect competitive market structure. Then we have some policy variables in the firm and that is the main decision. So, if you look at this regulation typically the regulatory and thus that comes more to the monopoly, but in case of perfect competitive market it is always a free market the price quantity decided by the market force and supply forces. So, more it is into a free market economy where the invisible hand principle works whenever there is a imbalance that is taken care about the demand and supply. Then we have a comparison between the monopoly and perfect competition on the basis of the long run equilibrium. So, in the long run again the price is decided by the demand and supply that is following the MC and MR rule. The output if you look at again it is increased at a increasing cost, decreasing cost or the constant cost. Long run in case of long run in the monopoly market all the firms they gets the normal profit even if not the super normal profit. Because if they are getting super normal profit that attains the new firms to enter into the market and increase the competition. And when it comes to capacity utilisation the capacity utilisation is full in case of perfect competitive market structure. Because the maximise the optimal quantity in case of a perfect competitive market structure is decided by the maximum output at the minimum cost of production and the maximum output generally if you look at it produce at the bottom of the minimum point of the average cost. Whereas in case of monopoly the capacity is not fully existed and always the output is produced at the decreasing portion of the average cost and that leads to some excess capacity in case of a monopoly market structure. Then when it comes to prediction of model there is a shift in the demand curve shift in the cost it if it is a fixed cost in nature in both the case perfect competitive monopoly market structure it will not disturb the equilibrium situation. But whenever there is a increase or decrease in the variable cost generally they disturb the equilibrium position. Similarly, the change in the demand whether it is elastic or inelastic accordingly the equilibrium position will change and also the corresponding profit maximising output price and whether the firm is getting super nominal profit normal profit or economic loss. So, we take a case we just take a small example to understand how this unregulated monopoly or the monopoly works in case of a real world situation. So, as you know DBLs if you look at there the monopoly in the diamond market. So, DBLs will take a case of how it is become a unregulated monopoly and how the different act of monopolization is done by DBLs in order to become a monopoly leader in the market. So, it founded in 1880 in South Africa and control about 99 percent of the world's diamond production until about 1900. So, they used to control 99 percent of the diamond production. Now, at present the firm produces 15 percent of world diamond, but still controls sales of 80 percent of the diamond market. So, they just produce 15 percent, but still they control sales of 80 percent in the diamond market. DBLs controls the price of diamond with a slogan, take it all or leave it. They are following a price rigidity. They are not going to reduce the price in order to increase the quantity demanded. Their philosophy is that you take it all or leave it. It is up to the buyer whether they are ready to buy at that typical price or not. So, if you summarize this case fact at least that even if they were controlling the market with their production, controlling the production, then when they are not controlling the production, they are now controlling the market through the sale of 80 percent of the total share of the diamond market. So, they just produce 15 percent, but when it comes to sale, they sell more than 80 percent and that way they emerge as a monopoly market. They follow a price rigidity. They never reduces the price in order to increase the price. If buyers really need it, they have to buy it in that typical price. If the demand for the diamond falls as it did in early 90s, DBR stands ready to buy diamond to support the price. So, here it comes to the act of monopolization. The demand for diamond decreases in 90 and what DBR they did, they did not want the demand to decrease. If the demand to decrease, then that will reduce the price. So, that time DBR what they did, they buy the diamond, they acted as a buyer to support the price at the same level because if they are not buying and the in generally the demand is decreasing, that leads to decrease in the price. So, DBR stands ready to buy diamond to support the price and this if you look at this is the activity through which they still want to maintain the monopoly market as the monopoly market because they are not allowing the demands to reduce. So, in one way they are limiting the quantity supply and also by doing this activity, they cleverly plus the demand for the demand for the diamond to the also increasing when there is a decreasing trend of demand for diamond in 90s and they catch a slogan that demand diamond is forever. They talk about the quality of the product, they talk about the durability of the product and if it is a diamond when you are buying it, you are buying it for lifetime. So, you should not think about the price and this is how they maintain the price rigidity, this is how they maintain the quality and durability of the product. So, if you look at DBS it is not a regulated monopoly through their activity, through their control over the supply and demand they have become the monopoly in the diamond market. Similarly, we have many more examples like if we can take up example of a Microsoft whether it is a monopoly or it is a act of monopolization or similarly you can take Indian railway whether it is a if you look at it is a kind of a regulated monopoly because there is no other player is in that market and if you look at there is also no close substitute. So, there are many other example what you can find there is a close resemblance of that market in the form of monopoly market.