Duopoly Market: Explanation, Types and Examples

Bittime - A duopoly is a market structure in which only two companies dominate a particular industry. In this condition, both companies have a big influence on prices and market competition. Even though they compete, there is often a dependency on each other in determining business strategy.

In a duopoly, both companies usually offer similar products or services, such as Android and iOS in the mobile operating system industry. This market structure is part of an oligopoly, but with a much smaller number of players, so competition is more concentrated.

Types of Duopoly

In general, there are two main types of duopoly:

1. Cournot Duopoly
This model was introduced by Antoine Augustin Cournot, a mathematician from France. In Cournot Duopoly, competition is based on production quantity, not price. Both companies determine how much of a good they will produce, and the end result is an equilibrium in which each company gets an equal share of the market.

2. Bertrand Duopoly
In contrast to the Cournot model, Bertrand Duopoly focuses more on price competition. In this model, both companies compete by lowering prices to attract more customers. This often leads to price wars, which can ultimately reduce the profitability of both companies.

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Examples of Duopoly in Various Industries

Some industries have a very clear duopoly structure. Here are some examples:

• Aircraft Industry: Boeing and Airbus
• Payment system: Visa and Mastercard
• Mobile Phone Operating System: Android and iOS
• Soft Drink Industry: Coca-Cola and Pepsi
• Computer Operating Systems: Windows then macOS

Advantages and Disadvantages of Duopoly

Advantages:

• Better Innovation: Due to the tough competition between the two big players, they tend to keep innovating to stay relevant in the market.
• Clearer Choices for Consumers: Consumers don't need to be confused about choosing from too many options, so they can focus on two main brands.
• Market Stability: With only two large players, the market tends to be more stable than in industries that have many competitors.

Disadvantages:

• High Barriers to Entry: It is difficult for new companies to enter an industry that is already dominated by two large companies.
• Lack of Choice for Consumers: If there are only two companies, the choices available to customers are limited.
• Potential Collusion: The two companies may work together secretly to set high prices and reduce competition, to the detriment of consumers.

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Conclusion

Duopoly is a form of market that is commonly found in various industries. While this structure provides benefits in terms of innovation and stability, it also has risks, such as a lack of healthy competition and limited choice for consumers. By understanding the dynamics of duopoly, companies and consumers can make wiser decisions in their business and purchasing strategies.

FAQ 

1. What is the difference between a duopoly and an oligopoly?

A duopoly has only two dominant players, while an oligopoly includes several companies competing in one industry.

2. Does duopoly always produce healthy competition?

Not always. Sometimes, companies in a duopoly can collude to control prices or markets.

3. Are there industries that might change from a duopoly to become more competitive?

Yes, some industries can develop to become more competitive if there are technological or policy innovations that allow more players to enter the market.

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Reference

Wall Street Mojo, Duopoly, accessed March 17, 2025.

Author: MF