A duopoly (from Greek δύο, duo (two) + πωλεῖν, polein (to sell)) is a type of oligopoly where two firms have dominant or exclusive control over a market. It is the most commonly studied form of oligopoly due to its simplicity. Duopolies sell to consumers in a competitive market where the choice of an individual consumer can not affect the firm. The defining characteristic of both duopolies and oligopolies is that decisions made by sellers are dependent on each other.
Duopoly models in economics and game theory
- The Cournot model, which shows that two firms assume each other's output and treat this as a fixed amount, and produce in their own firm according to this.
- The Bertrand model, in which, in a game of two firms, each one of them will assume that the other will not change prices in response to its price cuts. When both firms use this logic, they will reach a Nash equilibrium.
Characteristics of duopoly
- Existence of only two sellers
- Presence of monopoly elements: so long as products are differentiated, the firms enjoy some monopoly power, as each product will have some loyal customers
- There are two popular models of duopoly, i.e., Cournot's Model and Chamberlain's Model.
Modern American politics, in particular the electoral college system, has been described as duopolistic since the Republican and Democratic parties have dominated and framed policy debate as well as the public discourse on matters of national concern for about a century and a half. Third Parties have encountered various blocks in getting onto ballots at different levels of government as well as other electoral obstacles, such as denial of access to general election debates. Since 1987, the Commission on Presidential Debates, established by the Republican and Democratic parties themselves, supplanting debates run since 1920 by the League of Women Voters. The League withdrew its support in protest in 1988 over objections of alleged stagecraft such as rules for camera placement, filling the audience with supporters, approved moderators, predetermined question selection, room temperature and others. The Commission maintains its own rules for admittance and has yet to admit a third party candidate to a televised debate.
Examples in business
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 U.S. Department of Justice antitrust lawsuit. An appeal was upheld in 2004.
Examples where two companies control a large proportion of a market are:
- Woolworths and Coles in the Australian supermarket market (share 79% of the supermarket market)
- Norfolk Southern Railway and CSX Transportation operate a duopoly on freight rail traffic in the Eastern United States
- Apple's iOS and Google's Android make up over 99% of the mobile operating system market
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. No other broadcasters were allowed. Mainos-TV operated by leasing air time from Yleisradio, broadcasting in reserved blocks between Yleisradio's own programming on its two channels. This was a unique phenomenon in the world. Between 1986 and 1992 there was an independent third channel but it was jointly owned by Yle and MTV; only in 1993 did MTV get its own channel.
Duopoly is also 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. In Canada, this definition is therefore more commonly called a "twinstick".
- "Complaint - ATR - Department of Justice". www.usdoj.gov. Retrieved 9 April 2018.
- "Credit Card Antitrust Suit". mit.edu. Retrieved 9 April 2018.
- "Amex is suing Visa and Mastercard". 15 November 2004. Retrieved 9 April 2018 – via news.bbc.co.uk.
- http://www.weeklytimesnow.com.au/article/2008/11/03/20101_latest-news.html Weeklytimesnow.com.au - Coles, Woolworths still dominate
- Kramer-Miller, Ben (June 25, 2013). "Norfolk Southern Corp. Looks Like A Solid Investment". Seeking Alpha. Retrieved October 7, 2014.
- 99.6 percent of new smartphones run Android or iOS. The Verge. 16 February 2017.
- Mobile Operating System Market Share United States Of America. GlobalStats Statcounter. Aug 2018 - Aug 2019.