What is Duopoly?
617 reads · Last updated: December 5, 2024
A duopoly is a situation where two companies together own all, or nearly all, of the market for a given product or service. A duopoly is the most basic form of oligopoly, a market dominated by a small number of companies. A duopoly can have the same impact on the market as a monopoly if the two players collude on prices or output.
Definition
A duopoly refers to a market situation where two companies jointly hold all or nearly all of the market share for a particular product or service. This market structure is a basic form of oligopoly, meaning the market is dominated by a few companies. If these two players collude on price or output, a duopoly can have the same market impact as a monopoly.
Origin
The concept of a duopoly originates from economic studies of market structures, particularly in the early 20th century as industrialization accelerated and many industries began to be dominated by a few companies. Historically, the formation of duopolies is often linked to industry consolidation and mergers.
Categories and Features
Duopolies can be categorized into cooperative and non-cooperative types. A cooperative duopoly involves two companies working together through agreements or tacit understandings to control market prices or output. A non-cooperative duopoly involves two companies influencing the market through competitive strategies without explicit cooperation. Features of duopolies include high market concentration, price stability, and high barriers to entry.
Case Studies
A classic example of a duopoly is the competition between Coca-Cola and PepsiCo in the global soft drink market. Despite fierce competition, these two companies collectively hold a significant market share. Another example is Boeing and Airbus in the commercial aircraft manufacturing industry, where these two companies almost monopolize the global large commercial aircraft market.
Common Issues
Common issues investors face in duopoly markets include assessing the potential for market entry and predicting price changes. A common misconception is that duopolies are always detrimental to consumers; however, in some cases, competition can still lead to innovation and reasonable pricing.
