In this chapter, we turn our attention to labor unions and their role in providing countervailing power. Congress recognized the consequences of individual employees having to negotiate with large employers. For the most part, individual employees have no bargaining power and face all-or-nothing offers that reflect monopsony power. Consequently, Congress passed legislation that would permit employees to unionize and thereby create a labor monopoly. The idea was to level the playing field so workers could not be abused. This chapter provides a brief review of the statutes and the scope of the labor exemption.

The formation of a union converts a monopsony into a bilateral monopoly. The economic effects of a bilateral monopoly are generally positive. Employment and output expand. Thus, both employees and consumers are better off. We explain this analysis and illustrate it with reference to professional sports. This chapter also explores the antitrust conundrum arising from bilateral monopoly.

In some situations, it may be advantageous for a government to allow buyers or sellers to cooperate on prices and output to keep a lawful monopolist or a lawful monopsonist, respectively, in check. Although it may seem anticompetitive at first, allowing this behavior is a way to even the playing field and can lead to a socially optimal solution. The parties will find it in their mutual self-interest to select the quantity that maximizes the surplus, which is the competitive quantity. This market structure with actors on both sides acting as a single monopolist is known as bilateral monopoly. In many local markets for physician services, reimbursement rates (payment for services) are dictated by large health insurers who wield monopsony power. In an effort to blunt the buying power enjoyed by the health insurer, physicians have attempted to collectively bargain for the sole purpose of negotiating reimbursement rates. In this chapter, we examine the case for collective bargaining by physicians.