Duopoly

A duopoly is a model of competition in a market characterized mainly by the existence of two producing companies that control the entirety of a specific market, especially, thanks to the joint pricing.

The control of the market and the defense of the predominant positions of the two companies that carry out the duopolist work are carried out by means of an important tool: the price .

Thus, by setting certain prices together, these companies are able to prevent the entry of strong competitors that threaten their dominance in the market.

From the conceptual point of view, the companies present in a duopoly act in the same way as they would in a situation of classical monopoly . That is, seeking to maximize its benefits by matching its marginal revenue to its marginal cost of production.

Conceptually, it is a derivation of the monopoly model in which the weight of productive action falls simultaneously on two leading companies that enjoy significant market power .

In the same sense, the subsequent evolution of the same can lead to a situation of economic oligopoly , where it is a larger number of participating companies that control and occupy a certain economic space or spectrum. This, without even becoming a perfect competitionsystem .

The fact that duopolist producers decide to act together when establishing their prices is equivalent to the effect that decisions have on the practice of a single monopolistic enterprise.

Another characteristic of duopoly to highlight is that the products placed on the market by these two companies are usually very similar in terms of use, value, consumer perception, etc. In other words, this type of phenomenon usually appears in very homogeneous product markets (especially in the industrial field).

Types of duopoly

Duopolies can be classified as follows:

  • Cournot model: Based on the interaction between the two competing companies, which are directly affected by changes in the production of the other. That is, they work according to the supply decisions of their direct competition.
  • Bertrand model:When the interaction is focused on the game produced with the price levels of these firms, so that both companies operate independently.

This type of economic phenomenon is usually considered a privileged situation, because it allows you to enjoy outstanding conditions when performing a certain production and marketing activity within a territory, space or market.

Duopoly example

A fairly close example of duopoly in everyday life is the competition in the breakfast cocoa market with Cola-Cao and Nesquik as maximum exponents.

These two firms virtually cover the entire market and are easily identified. Another clear example is that of Coca-Cola and Pepsi Co.

Other types of imperfect competition

In the following table you can see all types of market in imperfect competition :

Market structure Number of bidders and degree of product differentiation Degree of control over the price Example
Monopoly A single bidder, there are no substitute products Full Drinking water services monopoly (unregulated)
Oligopoly Few bidders with homogeneous or differentiated products Any Vehicle Manufacturing (differentiated) or chemical products manufacturing (not differentiated)
Monopolistic competition Many suppliers with differentiated products Any Fast food
Monopsony Single claimant Full Public work
Oligopsony Few plaintiffs Any

 

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