What is a bi-lateral monopoly?

A bi-lateral monopoly in a labour market exists when a single employer -

a monopsonist - and a trade union - a monopolist - control the demand for
and supply of labour in a labour market.

The monopsonist and the trade union have conflicting objectives - the
monopsonist would like to pay a lower wage than the free market
equilibrium, and the trade union would like to negotiate as high a wage as
possible.

The competitive scenario

If a labour market is competitive in nature, with many buyers and sellers of
labour, the competitive equilibrium wage and employment levels are
determined by the interaction of the demand for labour D=(MRP)[1] and the
supply of labour S (the average cost of labour[2]), with the equilibrium at 'e',
and the wage and employment at W and Q respectively.
The monopsonist
However, if there is a single buyer of labour - a monopsonist - it will employ
up to the point where the marginal cost of labour (MCL) equals the marginal
revenue product (MRP), at Qm (fewer employed than at Q). The monopsonist
will only pay the average wage, at Wm (less than at W).

The union
It we now add a union as a single supplier of labour (with all employees union
members) the union can negotiate for a higher wage, at Wu in the diagram,
with employment at Qu. It could actually set a wage at W, or even higher than
W, but in this case employment would fall.

Bargaining power

The actual outcome of negotiations depends upon the relative bargaining

power of the employer and the union. The more powerful the union, the
higher the wage rate negotiated. Employment would also increase, up to a
maximum of Q, but if the wage rate is set above W, employment would fall.

Relative bargaining power is determined by several factors, including

the elasticity of demand for labour, and the elasticity of supply. For
example, if the elasticity of demand for labour is low, the union will have more
power to influence wages and employment.
The power of a union also depends upon whether the monopsonist in the
labour market is also a monopolist in the product market, or has significant
monopoly power. If the employer is also a monopolist it will be easier to pass
on any wage increase to the consumer in terms of increased prices.

[1] MRP determines the demand curve for labour and is determined by multiplying
the physical productivity of workers by the price of the products they produce.

[2] When the supply of labour is competitive, with homogeneous units of labour, the
average and marginal cost of labour is the same. Only when the supply is less than
perfectly competitive will the marginal cost of labour rise above the average cost.
The monopsonist does not have to pay all workers the same wage.