A bilateral monopoly is a market structure consisting of both a monopoly (a single seller) and a monopsony (a single buyer).

Bilateral monopoly is a market structure that involves a single supplier and a single buyer, combining monopoly power on the selling side (i.e., single seller) and monopsony power on the buying side (i.e., single buyer). This market structure emerges in situations where there are limitations on the number of participants, or where exploring alternative suppliers is more expensive than dealing with a single supplier. In a bilateral market, both buyers and sellers aim to maximize their profits. Although the seller may attempt to increase the product prices as the only supplier, the buyer can still negotiate for the lowest possible price since the seller has no other buyers to sell to.

In a standard monopoly structure, the monopolist sells to multiple buyers with no market power, thereby giving the monopolist the power to set their own price and quantity to optimise their profits. The same power imbalance occurs in a monopsony where the monopsonist is the only buyer in a market of many sellers.

Bargaining between buyers and sellers is in all essentials similar to bargaining between two people. So most of the conclusions of the bilateral monopoly theory hold whether or not the bargaining parties are monopolists in the strict sense of the word. As a result, the theory of bilateral monopoly and the theory of bargaining are identical. Furthermore, whether or not the negotiation parties are monopolists in the strict sense of the term, most of the implications of the bilateral monopoly theory hold true. Thus, the theory of bilateral monopoly might also be referred to as the theory of bilateral oligopoly, or theory of bilaterally constrained competition, or the theory of bargaining. However, we will use the term bilateral monopoly because it is the conventional and widely understood phrase.

The increase in bargaining power of one firm in a bilateral monopoly results in an increase in the social attention of the other firm, as well as a decrease in its own social attention. It also leads to an increase in the self-profit of the bargaining firm and a decrease in the profits of other firms, but has no effect on sales volume, price, total profits, consumer surplus, or social surplus. As in the symmetric case, manufacturers and retailers choose higher social attention in a cooperative framework than in a non-cooperative one, and these choices fully resolve the problem of double marginalization.

A bilateral monopoly requires the cooperation of both the monopolist and monopsonist to maximise their respective profits. Arthur Lyon Bowley argued that both parties follow a price leadership strategy in which the seller sets the price to maximise their profits and the buyer responds by setting the quantity to maximise their profits. This strategy can be analysed using the theory of Nash bargaining games, and market price and output will be determined by forces like bargaining power of both buyer and seller, with a final price settling in between the two sides' points of maximum profit. A bilateral monopoly model is often used in situations where the switching costs of both sides are prohibitively high.

The lack of alternatives within a given market gives way for vertical integration where the monopolist and monopsonist merge to control both upstream and downstream entities. An example of a monopolist using vertical integration to maximise their control is Standard Oil in the United States which is best known for its monopoly of oil production and refinery in the late nineteenth and early twentieth century. The market power that Standard Oil acquired from its monopoly of oil production allowed it to exert control over the railroads used to transport their oil. Standard Oil forced the railroads to exclusively service Standard Oil's business and to lower their prices otherwise Standard Oil would pull all of their business from that railroad company. In this case, the bilateral monopoly quickly became a structure of vertical integration with Standard Oil being both the monopolist and monopsonist.

In economic theory, the price in a bilateral monopoly market was initially considered to be indeterminate. This is because the final price in a bilateral monopoly market is generated by the bargaining process between buyers and sellers. The relative bargaining power of buyers and sellers reduces this uncertainty to a bounded solution. The upper bound is the price that would be fixed if the seller had no bargaining power, and the lower bound is the price that would be fixed if the buyer had no bargaining power. If the price of the market is set in this range, the market is considered to be a bilateral monopoly.