Duopoly

A duopoly is a market structure wherein two firms entirely (or almost entirely) own the market for a particular commodity or service. It allows both companies to collect and share maximum revenues. Moreover, the duopoly market characteristics include the presence of two key companies generating identical or similar goods.

It is a centralized form of oligopoly wherein two out of multiple enterprises functioning in the same marketplace are regarded as big players. Furthermore, both companies in the duopolistic market are interdependent with equal market division. 

• A duopoly implies a market environment where two business enterprises selling comparable goods and services virtually share the overall marketplace. 
• There are two types of duopolies: the Cournot duopoly and the Bertrand duopoly. Additionally, it is a concentrated form of oligopoly where each firm possesses relevant monopoly power. 
• Its advantages include healthy competition, the absence of other competitors, and more innovative goods and services. 
• The disadvantages of a duopolistic market are strong barriers to entry, lack of options for customers, and the possibility of collusion. 

Duopoly signifies a scenario where two organizations nearly dominate the entire market for specific products and services, for example, Pepsi and Coca-Cola. In other words, the two bigwigs and their relation define the marketplace in the duopoly market. Furthermore, the availability of a sole market rival leads to sufficient sales proceeds and magnitude. 

Duopolies are typically very lucrative corporations. Moreover, the activities influence the other firm’s response, interaction, modus operandi, and goods manufacturing and publicity. Please note that both businesses may collude to decide a certain return or price and sustain a competitive climate for high profits. 

Notwithstanding their related interests, the duopolies are neither compatible nor conflicting. Their rivalry is always restrained because head-to-head competition is mutually harmful. According to the industry type, both companies are either opponents or allies in collusion by a contract or strategically. 

One of the fascinating duopoly characteristics is both enterprises' significant individual monopoly power. That is to say, they aim at mutually exclusive batches of unique interests and supporters resonating with their different basic attitudes and ideals.

Generally, there are two categories of duopolies:

1. Cournot Duopoly

Named after the French philosopher and mathematician Antoine Augustin Cournot, the model asserts that the number of goods and utilities builds competitiveness between two businesses in a duopoly. It hypothesizes that price values on items and services in a duopolistic market are certainly based on their accessibility or volume. 

In the Cournot duopoly model, the leading establishments arrange market division in half and share equally. Here, both companies alter and modify their production till equilibrium is attained through equal market halves for each company. 

2. Bertrand Duopoly

It demonstrates that the cost of goods and services drives market competition. The model pinpoints that customers always choose the organization offering more low-priced products and utilities than its competitor. Consequently, both enterprises continuously reduce their charges, beginning a price war that undeniably leads to decreasing gains. 

So, let’s check some duopoly examples. 

Example#1

Here are several prominent duopolists in the current market. 

Example#2

The antitrust regulator of Britain has recently claimed that the Apple and Google duopoly is restricting options and competition. Moreover, the Competition and Markets Authority (CMA) has demanded a probe for the same.

As per the CMA’s temporary nonbinding report into competition in the technological industry, both firms regulate the provision of online content. For example, Apple forbids any app store besides iPhones and iPads (with pre-installed Safari browser). Google’s app store and browser Chrome are also pre-installed on most Android devices. 

To sum up, over half of all active smartphones in 2020 were Apple and the rest were Android. Further, their browsers jointly make up 90% of smartphone browser utilization in the UK. 

Duopolies render both advantages and disadvantages for industries and users. Here are a few of them:

Advantages

Lack Of Other Challengers

It is among the most crucial duopoly characteristics as this provides all opportunities to only two entities for cooperation and collection of maximum benefits. Also, consumers may avoid confusion and select the best out of the two firms as per their budget and preferences. 

More Innovative Products

The constant competition between two market kingpins increases the delivery of more creative goods and utilities. Needlessly, the battle for customer engagement lets both firms capitalize on their resources and workforce. This results in the availability of more innovative solutions. 

Healthy Competition

As long as the basis of duopoly market competition is quantity and not price (as stated in the Cournot model), a healthy competitive market is guaranteed. This is because each firm shares market power and revenues. Also, prices and output are stabilized upon reaching equilibrium. 

Disadvantages

High Entry Barriers

As both corporations embrace different procedures for brand loyalty, and client retention, the market entry of new companies is challenging. Simply put, they make barriers to entry, obstructing recent organizations from getting a bit of market share. 

Inadequate Options for Users

The extensive presence of just two companies in the market notably restricts the options of products and services. Furthermore, it blocks new competitors who may offer better solutions. 

Possibility Of Collusion

The duopolistic market entails price control and collusion and twisting of competition rules for their benefit. Moreover, this compels the purchasers to costly payments owing to the availability of a few choices. It disturbs the market equilibrium and deceives the consumers of the highest gains. 

This has been a guide to Duopoly and its Meaning. Here we explain the duopoly market, its characteristics, types, examples, and pros and cons. You can learn about accounting from the following articles –

• Petrodollar
• Market Penetration
• Stackelberg Model
• Monopoly vs Oligopoly
• Compare - Monopoly vs Monopolistic Competition