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Duopoly Definition

What Is a Duopoly?

A duopoly is a scenario the place two firms collectively personal all, or practically all, of the marketplace for a given services or products. A duopoly is essentially the most primary type of oligopoly, a market dominated by a small variety of firms. A duopoly can have the identical affect available on the market as a monopoly if the 2 gamers collude on costs or output.

Key Takeaways

  • A duopoly is a type of oligopoly, the place solely two firms dominate the market.
  • The businesses in a duopoly are likely to compete in opposition to each other, decreasing the prospect of monopolistic market energy.
  • Visa and Mastercard are examples of a duopoly that dominates the funds business in Europe and the US.
  • One drawback of duopolies are that customers have little alternative in merchandise.
  • One other drawback of duopolies are that the 2 gamers might collude and improve costs for the patron.

Understanding a Duopoly

In a duopoly, two competing companies management the vast majority of the market sector for a specific services or products they supply. A enterprise might be a part of a duopoly even when it offers different companies that don’t fall into the market sector in query. For instance, Google and Meta (previously Fb) have dominated digital promoting for a lot of the twenty first century, and performance as a duopoly in that discipline. However Google shouldn’t be related to a duopoly in its different product sectors, comparable to pc software program.

A duopoly is a type of oligopoly and shouldn’t be confused with a monopoly, the place solely a single producer exists and controls the market. With a duopoly, every firm will are likely to compete in opposition to the opposite, maintaining costs decrease and benefiting shoppers. Nonetheless, since there are solely two main gamers in an business beneath a duopoly, there’s some probability {that a} monopoly could possibly be shaped, both by way of collusion between the 2 firms or if one goes out of enterprise.

In a duopoly, oligopoly, or monopoly, the events concerned might collude and use their energy to inflate costs. Because it ends in shoppers paying increased costs than they might in a really aggressive market, collusion is prohibited beneath U.S. antitrust legislation.

Oligopoly

A duopoly is a specific sort of oligopoly, An oligopoly exists when a number of companies management the overwhelming majority of the market sector. Whereas a duopoly qualifies as an oligopoly, not all oligopolies are duopolies. For instance, the car business is an oligopoly as a result of there are a restricted variety of producers, however greater than two, who should reply to worldwide demand.

Duopoly vs. Duopsony

A duopoly shouldn’t be confused with a duopsony. In a duopoly, two competing companies management the vast majority of the market sector for a specific services or products they supply. For instance, Coca-Cola and Pepsi signify a duopoly as a result of the 2 companies management virtually all the marketplace for cola drinks.

A duopsony, nevertheless, is an economic condition whereby there are solely two giant consumers for a particular services or products. The consumers, due to this fact, have appreciable bargaining energy and might decide market demand so long as there are many companies vying to promote to them.

Intel Corp. (INTC) and Superior Micro Units Inc. (AMD) are an instance of a duopsony. Mixed, they command practically 100% of gross sales within the pc processing chip market and have substantial affect over their suppliers. Duopsony is often known as a “purchaser’s duopoly” and is said to oligopsony, a time period describing a market the place there are a restricted variety of consumers.

Benefits and Disadvantages of a Duopoly

Duopolies can have each optimistic and destructive results on the businesses within the duopoly and the patron. First, the 2 firms can cooperate with one another and maximize their income as there aren’t any different rivals. In different phrases, there’s a collusive cooperative equilibrium. The businesses in a monopoly can focus on enhancing their current merchandise slightly than feeling stress to create new merchandise for the market. As a result of the 2 firms compete with one another, the patron advantages as a result of costs are managed to some extent and don’t turn out to be monopoly costs.

The disadvantages of duopolies are that they restrict free commerce. With a duopoly, the provision of products and companies lacks range, and there are restricted choices for shoppers. Additionally, it’s tough for different rivals to enter the business and acquire market share. The absence of rivals in a duopoly stifles innovation. With a duopoly, costs could also be increased for shoppers when the competitors shouldn’t be driving costs down. Price fixing and collusion can happen in duopolies, which suggests shoppers pay extra and have fewer options.

Professionals

  • The 2 firms profit by cooperating to enhance income.

  • Corporations should not have to continually interact in fruitless competitors/fear about disruptors.

  • Costs could also be managed by the rivalry between the 2 firms.

Cons

  • Free market buying and selling and entrance of recent firms is restricted.

  • Trade innovation and progress might be curtailed.

  • Customers have restricted choices.

  • Worth fixing and collusion might price shoppers extra.

Examples of Duopoly

Boeing and Airbus have been thought-about a duopoly for his or her command of the big passenger airplane manufacturing market. Equally, Apple and Samsung dominate the smartphone market. Whereas there are different firms within the enterprise of manufacturing passenger planes and smartphones, the market share is extremely concentrated between the 2 companies recognized within the duopoly.

Visa (V) and Mastercard (MA) are thought-about a duopoly. The 2 monetary powerhouses personal over 80% of all European Union card transactions. This dominance has led the European Central Financial institution (ECB) to attempt to discover methods to interrupt up the duopoly. To date, the ECB has tried interchange price caps, however a brand new scheme that might permit on the spot funds utilizing nationwide fee playing cards throughout European nations could possibly be a game-changer.

A European infrastructure for immediate funds would get rid of the necessity for individuals to make use of the worldwide companies of Visa or Mastercard. One other suggestion is to permit on the spot funds at factors of interplay or factors of sale in order that the necessity for the normal playing cards would disappear altogether.

The Backside Line

There are many examples of duopolies in right now’s markets—Coca-Cola and Pepsi within the soda business and Apple and Samsung within the smartphone business are two of them.

Duopolies are a type of oligopoly, and the most important drawback of duopolies, oligopolies, and monopolies is that the businesses concerned can dominate markets, collude with one another, and lift costs for the patron.

Duopoly FAQs

What Is a Duopoly in Economics?

A duopoly exists when two firms dominate a marketplace for a given services or products. A duopoly can have the identical affect available on the market as a monopoly if the 2 gamers collude on costs or output.

What Are the Kinds of Duopoly?

The 2 principal sorts of duopoly: the Cournot duopoly and Bertrand duopoly.

The Cournot duopoly mannequin states that the amount of products or companies produced constructions the competitors among the many two firms in an business. In line with the mannequin, the 2 firms determine collaboratively to separate the market between each other. If one firm alters its manufacturing ranges, the opposite firm should additionally alter its manufacturing to keep up the equilibrium of a 50/50 break up of the market.

Alternatively, the Bertrand duopoly mannequin states that it’s worth and never manufacturing amount that constructions the competitors between the 2 companies. The mannequin posits that customers will select the lower-priced product when given two selections of equal high quality. This suggests that the 2 firms within the duopoly will interact in a worth struggle to realize market share.

What Is an Instance of a Duopoly?

An instance of a duopoly is the dominance that Apple and Samsung have over the smartphone market.

What Is Duopoly and Oligopoly?

A duopoly is essentially the most primary type of oligopoly, a market dominated by a small variety of firms.

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