What market situation exists when there is only one buyer and one seller?

In a market scenario where there is only one buyer and one seller, the situation is referred to as bilateral monopoly. This unique arrangement entails both parties having significant power in the market due to the lack of competition. The single seller provides a specific good or service, while the single buyer is the sole purchaser of that good or service.

In this setting, negotiation plays a crucial role, as the buyer and seller must reach an agreement on the price and quantity produced. If one party can leverage their position effectively, they can shape the terms of the transaction in their favor, which can lead to inefficiencies or outcomes that are not optimal for either party.

This contrasts with a monopsony, where there is one buyer and multiple sellers, and a monopoly, where there is one seller and multiple buyers. Bilateral monopsony involves multiple buyers and a single seller, which doesn’t apply here. Understanding bilateral monopoly helps illustrate the complexities of negotiating power in unique market structures.