Fundamentals of Business Economics and Management · Forms of Market

Other Market Forms: Duopoly and Monopsony Explained

Updated 10 October 2026 · Fact-checked

Duopoly is a market with only two sellers of a product. Monopsony is a market with only one buyer. Bilateral monopoly has one seller and one buyer facing each other. To solve questions, count the sellers and buyers, then match the count to the market name.

Understand Other Market Forms: Duopoly and Monopsony

Most market forms are defined by the number of sellers: perfect competition has many, monopoly has one, oligopoly has a few. This topic adds forms that are named by a different count, or by the buyer side of the market.

Duopoly means two sellers. It is the simplest case of oligopoly (competition among the few). The two firms depend on each other. If one cuts its price, the other must think about how to respond. The product may be identical or differentiated. The firms may compete or may agree to fix price together, which is called collusion.

Monopsony means a single buyer. Think of a monopoly turned around. Here the power sits with the buyer, not the seller. A single buyer can push the price it pays downward because sellers have nowhere else to sell. Example: a lone sugar mill in a remote area buying all the sugarcane from nearby farmers. Another common example is a single large employer in a small town, which is the only buyer of local labour.

Bilateral monopoly means one seller facing one buyer. The seller wants a high price and the buyer wants a low price. The final price is not set by a market rule. It depends on bargaining power and negotiation, so it falls somewhere between the two extremes.

A related term is oligopsony, which means a few buyers. The pattern is simple: the prefix tells you the number, and the ending tells you the side. 'Poly' ends refer to sellers. 'Psony' ends refer to buyers.

Key formulas to remember

Duopoly: 2 sellers, many buyers; A special case of oligopoly. Firms are interdependent.
Monopsony: 1 buyer, many sellers; Buyer has market power and can pay a lower price.
Bilateral monopoly: 1 seller, 1 buyer; Price is decided by bargaining, not by the market.
Oligopsony: Few buyers, many sellers; Buyer-side counterpart of oligopoly.
Monopoly (for contrast): 1 seller, many buyers; Seller has the market power.

How to solve Other Market Forms: Duopoly and Monopsony questions

Use this method for any definition, example or identification question on these market forms.

1Read the question and mark the number of sellers and the number of buyers.
2Decide which side is described: sellers or buyers. Words like 'only one buyer' or 'single employer' point to the buyer side.
3Match the count: 2 sellers is duopoly, 1 buyer is monopsony, 1 seller with 1 buyer is bilateral monopoly.
4Check whether the question asks about price. Duopoly: interdependence or collusion. Monopsony: buyer pays less. Bilateral monopoly: price by bargaining.
5Eliminate options that give the wrong count or the wrong side.
6Pick the option that fits both the count and the side.

Quickest way: Prefix and ending shortcut

When to use it: Use this for any one-line MCQ that asks you to name a market form or state its feature.

Read the prefix: Duo = two, Mono = one, Oligo = few, Bi = both sides.
Read the ending: 'poly' = sellers, 'psony' = buyers.
Join them: Duo + poly = two sellers. Mono + psony = one buyer.
If both sides have one party, choose bilateral monopoly.
Reject any option that swaps buyers and sellers.

Common mistakes in Other Market Forms: Duopoly and Monopsony

Saying monopsony means a single seller.
The word looks similar to monopoly, so students mix the two.
Fix: Remember 'psony' is for buyers. Monopoly is one seller. Monopsony is one buyer.
Treating duopoly as a separate form unrelated to oligopoly.
It has its own name, so students think it is a different structure.
Fix: Duopoly is the smallest case of oligopoly, with just two sellers.
Assuming duopoly firms must always collude.
Students remember agreement on price and apply it everywhere.
Fix: Duopolists may compete or may collude. The key feature is interdependence.
Thinking a monopsonist sets a high price.
Students link market power with high prices, as in monopoly.
Fix: A monopsonist uses power as a buyer, so it can push the price it pays lower.
Expecting a fixed market price in bilateral monopoly.
Students apply demand and supply rules from other markets.
Fix: With one seller and one buyer, the price is settled by bargaining strength.

Worked examples

Example 1

In a small town, one factory is the only buyer of labour, and many workers look for jobs. Which market form is this on the labour side?

A. Monopoly
B. Monopsony
C. Duopoly
D. Bilateral monopoly

Show the solution

Count the buyers of labour: only one factory.
Count the sellers of labour: many workers.
One buyer with many sellers is the definition of monopsony.
Monopoly needs one seller, so A is wrong. Duopoly needs two sellers, so C is wrong. Bilateral monopoly needs one seller as well, so D is wrong.

Answer: B. Monopsony

Example 2

Only two companies sell a certain product in a region, and each watches the other's price before deciding its own. Which statement best describes this market?

A. Monopsony with one buyer
B. Perfect competition with many sellers
C. Duopoly with interdependent sellers
D. Bilateral monopoly with one seller and one buyer

Show the solution

Count the sellers: two.
Two sellers is a duopoly.
Watching each other's price shows interdependence, the main feature of duopoly.
A is wrong because the question is about sellers. B is wrong because there are only two sellers. D is wrong because many buyers are not ruled out and there are two sellers, not one.

Answer: C. Duopoly with interdependent sellers

Exam tips

Questions here are usually direct definitions or identify-the-market MCQs. Learn the counts first.
Always check whether the question describes the buyer side or the seller side before choosing.
Watch for options that swap monopoly and monopsony. They are the usual trap.
Bilateral monopoly is often tested by the phrase 'one seller and one buyer' or 'price by bargaining'.
Revise duopoly together with oligopoly, since it is its simplest case.

Practice questions from Forms of Market

Other Market Forms: Duopoly and Monopsony: frequently asked questions

What is duopoly in simple words?

Duopoly is a market with just two sellers. Each firm knows its decision affects the other, so they are interdependent. They may compete or agree on a common price.

What is an example of monopsony?

A lone factory that is the only buyer of labour in a small town is a common example. A single mill buying all the sugarcane in an area also fits. Sellers have no other buyer to turn to.

What is bilateral monopoly?

It is a market with one seller and one buyer. Each side has power, so the price is not set by a market rule. It is settled by bargaining between the two.

How is monopsony different from monopoly?

In monopoly there is one seller and many buyers, and the seller holds the power. In monopsony there is one buyer and many sellers, and the buyer holds the power.