In industrial organisation theory, a bilateral monopoly situation arises in a market when there is which specific combination of buyers and sellers for a particular product?

Introduction / Context:
Market structures are classified based on the number of buyers and sellers and the nature of competition. A bilateral monopoly is a specialised case that combines features of monopoly and monopsony. Understanding this concept helps in analysing bargaining outcomes and the determination of prices when both sides of the market are highly concentrated. This question asks you to select the combination of buyers and sellers that defines a bilateral monopoly.

Given Data / Assumptions:
- The term in focus is bilateral monopoly.
- Options describe different numbers of buyers and sellers: two sellers, two buyers, one buyer and one seller, and two buyers and two sellers.
- We assume textbook definitions of monopoly (one seller) and monopsony (one buyer).

Concept / Approach:
A monopoly is a market with a single seller and many buyers. A monopsony is a market with a single buyer and many sellers. A bilateral monopoly arises when there is a single seller facing a single buyer. Both sides have market power, so the price and quantity are determined through bargaining between the monopolist and the monopsonist. The prefix bilateral simply indicates that there is a single dominant participant on each side of the transaction.

Step-by-Step Solution:
Step 1: Recall the meanings of mono and bilateral. Mono refers to one and bilateral refers to two sides (buyer and seller).Step 2: Examine option C: exactly one buyer and exactly one seller. This directly matches the idea of a monopoly seller and a monopsony buyer interacting in the same market.Step 3: Examine option A: only two sellers and many buyers. This would be a duopoly on the seller side, not a bilateral monopoly.Step 4: Examine option B: only two buyers and many sellers. This would approximate a buyer side oligopsony, not a single buyer.Step 5: Examine option D: two buyers and two sellers. This describes a small oligopolistic market on both sides, not the specific one buyer, one seller structure of bilateral monopoly.

Verification / Alternative check:
A typical example used in textbooks is a single labour union (monopoly supplier of labour) bargaining with a single employer (monopsony demander of labour) in a company town. Another example might be a single mining company selling to a single large industrial user. In both cases there is one seller and one buyer, which matches option C.

Why Other Options Are Wrong:
Option A is wrong because two sellers imply no monopoly on the selling side. Option B is wrong because two buyers imply no pure monopsony. Option D is wrong because having two on each side breaks the mono condition and leads instead to bilateral oligopoly.

Common Pitfalls:
Some students see the word bilateral and assume it refers to two sellers or two buyers, misinterpreting bilateral as meaning “two firms.” It actually refers to two sides of the market. Another pitfall is to focus only on the seller side and forget that the buyer side can also be concentrated, which is the essence of monopsony and bilateral monopoly.

Final Answer:
A bilateral monopoly exists when there is Exactly one buyer and exactly one seller of a product.