Duopoly

Duopoly

A duopoly is a market structure in which two firms together control all or nearly all of the supply of a particular good or service. It is the simplest form of an oligopoly (a market dominated by a small number of firms). Because only two firms hold most of the market power, their interactions determine prices, output, innovation incentives, and consumer choice.

Key features

• Two dominant firms account for the vast majority of market share.
• Firms may compete vigorously or implicitly/explicitly coordinate behavior.
• Outcomes can resemble competitive markets (if rivalry is strong) or a monopoly (if collusion occurs).
• Barriers to entry are often high, making it hard for new competitors to gain share.

Duopoly vs. related concepts

• Duopoly vs. oligopoly: A duopoly is a specific case of an oligopoly with exactly two major players; an oligopoly can have more than two.
• Duopoly vs. monopoly: Monopolies have a single seller; duopolies have two sellers.
• Duopoly vs. duopsony: A duopsony is a market with two large buyers (buyer-side concentration), whereas a duopoly is concentration among sellers. Example: Intel and AMD exert buyer power over component suppliers in some contexts (duopsony-like influence).

Theoretical models

• Cournot model: Firms compete by choosing quantities. Each firm’s output decision affects market price; equilibrium arises where each firm’s quantity best responds to the other’s.
• Bertrand model: Firms compete on price. With homogeneous products, price competition can drive prices down toward marginal cost, potentially eliminating profits.

Advantages and disadvantages

Advantages
* Potential for stable competition—firms can focus on efficiency and product quality rather than continual undercutting.
* Economies of scale—two large firms may achieve cost efficiencies that benefit consumers via lower costs (when competition exists).

Disadvantages
* Limited consumer choice and reduced diversity of offerings.
* Higher risk of price coordination or collusion, which raises consumer prices.
* Reduced incentives for innovation if competition is muted.
* High barriers to entry can entrench the dominant firms.

Notable examples

• Visa and Mastercard — dominate card payment processing in many regions (often cited as controlling the majority of card transactions).
• Boeing and Airbus — control the large commercial passenger aircraft market.
• Apple and Samsung — major leaders in the global smartphone market.
• Coca‑Cola and Pepsi — dominate cola beverage markets in many countries.
• Google and Meta — function as a duopoly in large parts of the digital advertising market.
  (These markets may include smaller competitors, but market share is heavily concentrated between the two leaders.)

Antitrust concerns

When the two firms in a duopoly collude on price, output, or market allocation, consumers face higher prices and fewer choices. Such collusion is illegal under antitrust laws in many jurisdictions, which aim to preserve competition and penalize cartels and coordinated conduct.

Conclusion

A duopoly concentrates market power in two firms and can produce either healthy rivalry or anticompetitive outcomes. The real-world impact depends on how fiercely the firms compete, regulatory oversight, and how easily new entrants can challenge the incumbents.