Bilateral monopoly on a market for an intermediate good

In this paper we analyze a procedure through which price and quantity could be determined on a bilateral monopoly market for an intermediate good. The proposed solution concept is of a non-cooperative Nash equilibrium type. A dynamic process in which the bilateral monopolists repeatedly announce prices and quantities is studied. It is shown that, under particular assumptions, this process must converge to the proposed equilibrium solution. Finally, our solution concept leads to the competitive equilibrium if both sides of the market are ‘fractionated’ into a large number of ‘small’ buyers and ‘small’ sellers.