Duopoly facts for kids
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
There are two principal duopoly models, Cournot duopoly and Bertrand duopoly:
- 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
- Interdependence: if any firm makes the change in the price or promotional scheme, other forms also have to comply with it, to remain in the competition.
- 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 Bertrand's Model.
Like a market, a political system can be dominated by two groups, which exclude other parties or ideologies from participation. One party or the other tends to dominate government at any given time (the Majority party), while the other has only limited power (the Minority party). 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 have two-party government systems.
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)
- Myer and David Jones in the Australian upmarket department store market
- Coca-Cola and Pepsi in the soft drink market
- McDonald's and Burger King in the fast food hamburger market
- Marvel Comics and DC Comics in comic books
- NRL and AFL in Australian sports leagues
- Mattel and Hasbro in the Toy market
- Husqvarna and Stihl in the chainsaw market
- Toyota Hilux and Ford Ranger in pickup trucks
- Nine Network and Seven Network in the Australian commercial television 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.
Safaricom mobile service provider and Airtel in Kenya are perfect examples of Duopoly market in the African telecommunication industry.
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".
Duopoly Facts for Kids. Kiddle Encyclopedia.