Bargaining Under Bilateral Monopoly

This technical note introduces the economics of bilateral monopoly, a market structure in which a single seller faces a single buyer. Unlike competitive markets, bilateral monopoly produces no unique equilibrium price; instead, it generates a range of mutually beneficial outcomes, the contract zone, whose boundaries are determined by each party's outside options. The note explains why standard supply-and-demand analysis cannot predict the settlement within this range and examines the forces that shape it: threat points and how they shift with changing alternatives, focal points and precedent as coordination devices, self-serving bias as a source of disagreement over fairness, asymmetric information as a cause of avoidable impasse, and strategic delay as a costly signaling mechanism. The note builds on the competitive market framework presented in "The Economics of Competitive Markets" (UVA-GEM-0180) and the monopoly analysis in "Imperfect Competition and Monopolies" (UVA-GEM-0105). It is designed for use in MBA electives covering sports economics, labor economics, or negotiation, and pairs well with cases involving collective bargaining, supply chain negotiations, or merger transactions.