A duopoly (from Greek δύο, duo 'two'; and πωλεῖν, polein 'to sell') is a type of oligopoly where two firms have dominant or exclusive control over a market, and most (if not all) of the competition within that market occurs directly between them.
Duopoly is the most commonly studied form of oligopoly due to its simplicity.
Duopolies can exist in various forms, such as Cournot, Bertrand, or Stackelberg competition.
Similar features are discernible in national political systems of party duopoly.
In 1838, Antoine Augustin Cournot published a book titled "Researches Into the Mathematical Principles of the Theory of Wealth" in which he introduced and developed this model for the first time.
The Cournot duopoly model relies on the following assumptions:[2] In this model, two companies, each of which chooses its own quantity of output, compete against each other while facing constant marginal and average costs.
In equilibrium, no firm can increase profits by changing its output level Two first order conditions equal to zero are the best response.
[5] Cournot's duopoly marked the beginning of the study of oligopolies, and specifically duopolies, as well as the expansion of the research of market structures, which had previously focussed on the extremes of perfect competition and monopoly.
The Bertrand competition was developed by a French mathematician called Joseph Louis François Bertrand after investigating the claims of the Cournot model in "Researches into the mathematical principles of the theory of wealth, 1838".
[4] According to the Cournot model, firms in a duopoly would be able to keep prices above marginal cost and hence be extremely profitable.
Nash equilibrium is p1 = p2 = c. Under static price competition with homogenous products and constant, symmetric marginal cost, firms price at the level of marginal cost and make no economic profits.
In this model, firms tend to price their products at the level of their marginal cost, resulting in zero economic profits, a phenomenon known as the Bertrand paradox.
In a duopoly, quality standards can play a significant role in the competitive dynamics between the two firms.
A low-quality manufacturer may benefit from a slightly stringent quality standard in the absence of sunk costs, whereas a high-quality producer may suffer from it.
[8] In some cases, firms may engage in a quality competition, attempting to outdo one another by improving their products or services to attract more customers.
Like a market, a political system can be dominated by two groups, which exclude other parties or ideologies from participation.
According to Duverger's law, this tends to be caused by a simple winner-take-all voting system without runoffs or ranked choices.
The United States and many Latin American countries, such as Costa Rica, Guyana, and the Dominican Republic have two-party government systems.
The prime minister-finance minister duopoly is an unusual form of court politics.
There have been few other countries where the prime minister and the Treasury have had such a tumultuous relationship as Australia and the United Kingdom.
There have been some confrontations in the past when the Finance ministry did not have the full support of the prime minister, leading to internal ministerial battles over economic strategy.
A permanent civil service is a basic requirement for the duopoly system to function properly.
The permanent civil service in general, and the Socialist Party in particular, are critical to the duopoly's effective operation.
The duopoly is confronted with some quandaries, such as tensions between different groups in the office over their relative positions.
This model predicts that, under certain conditions, firms will set prices equal to marginal cost, leading to perfect competition.
A commonly cited example of a duopoly is that involving Visa and Mastercard, who between them control a large proportion of the electronic payment processing market.
In 2000 they were the defendants in a United States Department of Justice antitrust lawsuit.
[12] Examples where two companies control an overwhelming proportion of a market are: In Finland, the state-owned broadcasting company Yleisradio and the private broadcaster Mainos-TV had a legal duopoly (in the economists' sense of the word) from the 1950s to 1993.
Duopoly is used in the United States broadcast television and radio industry to refer to a single company owning two outlets in the same city.
This usage is technically incompatible with the normal definition of the word and may lead to confusion, inasmuch as there are generally more than two owners of broadcast television stations in markets with broadcast duopolies.