LEARNING OBJECTIVES

By the end of this section, you will be able to explain:

• How firms determine wages and employment when a specific labor market combines a union and a

monopsony

What happens when there is market power on both sides of the labor market, in other words, when a union

meets a monopsony? Economists call such a situation a bilateral monopoly.

FIGURE 14.14 Bilateral Monopoly Employment, L*, will be lower in a bilateral monopoly than in a competitive labor

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14.5 • Employment Discrimination 343

market, but the equilibrium wage is indeterminate, somewhere in the range between Wu, what the union would

choose, and Wm, what the monopsony would choose.

Figure 14.14 is a combination of Figure 14.6 and Figure 14.11. A monopsony wants to reduce wages as well as

employment, Wm and L* in the figure. A union wants to increase wages, but at the cost of lower employment,
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