What Is a Duopoly?
A duopoly is a market structure where two companies hold the majority of the market share for a particular product or service. As the simplest form of oligopoly, a duopoly can impact the market similarly to a monopoly when the companies involved collude on pricing or production.
Key Takeaways
- A duopoly is a type of oligopoly dominated by two companies.
- These companies often compete, reducing the likelihood of monopolistic control.
- Visa and Mastercard are quintessential examples, particularly within the payments industry in both Europe and the United States.
- Consumers may find limited choices in a duopoly-dominated market.
- Potential collaboration between the two players can lead to inflated prices.
Understanding a Duopoly
In a duopoly, two companies command the primary market sector for specific products or services. Companies may still be part of a duopoly even if they provide various other services. For instance, Google and Meta’s dominance over digital advertising markets classifies them as a duopoly, even though Google maintains ventures in other fields such as software development.
A duopoly differs from a monopoly, which includes a single market controller. In duopolies, companies usually compete, keeping prices manageable for consumers. That said, there’s a risk of forming a monopoly through potential collusion or one company’s failure impacting the market drastically.
Possible collusion actions can result in inflated prices, harming consumers, and breaching antitrust laws.
Oligopoly
A duopoly is a distinct type of oligopoly, where several companies control significant sections of a particular market. While all duopolies qualify as oligopolies, the reverse is not true—take the automobile industry as an example where more than two companies engage globally, forming an oligopoly but not a duopoly.
Duopoly vs. Duopsony
It is important to differentiate a duopoly from a duopsony. In a duosyony, only two substantial buyers influence the market for a given product or service. As major buyers, these entities yield significant bargaining power, setting standards as determined by market demands. A notable example is Intel and AMD, who influence the computer chip market from the purchasing perspective, establishing nearly 100% total demand dominance.
Advantages and Disadvantages of a Duopoly
Duopolies present unique benefits and drawbacks.
Pros
- Collaborative ventures can enhance profits for the involved companies.
- Enterprises could focus on advancing existing products rather than incessant, disruptive competition.
- Rivalries within the duopoly can moderately regulate pricing.
Cons
- Market freedom for trade and entry of new businesses becomes restricted.
- Market presence of limited competitors restricts innovation and evolution.
- Consumers experience reduced choices among products.
- Cooperative price manipulation and collusion can lead to increased consumer costs.
Examples of Duopoly
Some glaring illustrations include:
- Boeing and Airbus grasping considerable share in large passenger airplane production.
- Apple and Samsung’s dominance in the smartphone market.
For payment systems, Visa and Mastercard hold above 80% transactions in the EU, a situation the European Central Bank seeks to alter to introduce balanced market dynamics.
The Bottom Line
Numerous present-day markets operate under duopoly structures. Despite boosting competition moderately within industries, duopolies—including their constituent oligopolies and monopolies—pose notable challenges such as potential market manipulations through progression and price elevations.
What Is a Duopoly in Economics?
A duopoly exists dominantly within a market, akin to monopolies if the companies align strategy-wise towards pricing and production.
Types of Duopoly
The two primary duopoly models identified are the Cournot and Bertrand duopolies.
- Cournot Duopoly: Deliberates on quantity-related competition between companies determining product or service distribution for market balance.
- Bertrand Duopoly: Focuses on price-centric market rivalry, triggering potential price wars for gaining a competitive edge.
Example of a Duopoly
The empirical dominance involving Apple and Samsung in the smartphone market highlights an exemplary duopoly.
Is a Duopoly an Oligopoly?
Indeed, a duopoly signifies the most streamlined form of an oligopoly, representing a highly concentrated market with two main players.
Related Terms: monopoly, oligopoly, price fixing, collusion, Cournot duopoly, Bertrand duopoly.
References
- U.S. Department of Justice. “Price Fixing, Bid Rigging, and Market Allocation Schemes: What They Are and What to Look for”.
- Finextra. “ECB Chief Says Instant Payments Could Break Visa/Mastercard Duopoly”.
