A duopoly is a model of competition in a market that is characterized by the existence of two sellers, that is, two companies that produce the same good or service that control the entirety of a specific market. This is possible thanks to joint pricing and, consequently, their ability to prevent the entry of other competitors that threaten their dominance in the market.
It is a particular case of oligopoly, so we can say that a duopoly is between the monopoly and the economy of perfect competition. Firms present in a duopoly (a type of imperfect competition) seek to increase their profits by equating their marginal income to their marginal costs of production.
Types of duopoly
Broadly speaking, it can be said that the companies that are part of a duopoly enjoy a privileged situation, since they can enjoy specific conditions when carrying out their production and marketing activities within a market, a territory or a specific space. Likewise, there are two types of duopolies, each of which has different characteristics:
- Cournot model: the two companies interact with each other and each one is affected by changes in the other's production. In other words, they work depending directly on the decisions of their direct competition.
- Bertrand's model: both companies operate independently, so that each will assume that the other will not increase or decrease prices.
Examples of economic duopoly
At present, we can find a large number of duopoly cases in everyday life, especially in the economic, financial and business fields. Here are some practical examples of a duopoly:
- Coca-Cola and Pepsi in the soft drink market.
- Moody's and Standard & Poor's in the ranking of financial risks.
- Microsoft Windows and Apple OS X in the market for computer operating systems.
- Google Android and Apple iOS in the market for operating systems for smartphones, smart tablets, smart tv, smart wristbands, etc.