Do you recall a time you or your brother or sister got into trouble with your closest friend? After that, you had to explain everything to your parents. You may work together in that circumstance by coming up with a lie that would spare you both from harsh punishment. Or you may get into a quarrel and blame one another, which would not end well.

A duopoly, like which you and your real-life counterpart, is made up of two companies that are dominant in their respective industries. You might assume that depending on whether two separate corporations cooperate or clash, a little more fragile tale will play out. Continue reading to learn more about duopoly structures, including what they are, how they differ, and what traits they have.

What is a Duopoly?

A duopoly occurs when there are just two businesses offering a specific service or product in the market. This implies that buyers have few alternatives when it pertains to where to make their purchases and that the two businesses have a big say in the cost and accessibility of that good or service. A duopoly is a type of market structure where there are just two companies manufacturing a certain good or offering a certain service, giving them considerable influence over the terms of the market, including availability, pricing, and other factors.

A duopoly occurs when two rival companies hold a monopoly on a large portion of the market for a certain good or service. Even if a company offers services outside of the relevant market area, it might nonetheless be a member of a duopoly. For the most part of the twenty-first century, for instance, Google and Meta (previously Facebook) have dominated online advertisement and operate as a duopoly in that industry. However, Google is not linked to any monopoly in its other lines of goods, such as software for computers.

A monopoly, in which there is only one manufacturer, and they control the whole market, is not to be misunderstood as a duopoly, which is a type of oligopoly. In a duopoly, businesses will often compete with one another to keep costs down and benefit customers. However, when there are only remaining significant competitors in a duopolistic industry, there is a chance that a monopoly might develop as a result of collaboration between the two businesses or the failure of one.

Example of Duopoly

To understand the concept of duopoly in a better way, let us consider some practical examples. Due to their dominant positions in the market for producing large passenger airplanes, Airbus and Boeing have been seen as a duopoly. In a similar vein, Apple and Samsung rule the smartphone industry. Although there are other firms that manufacture smartphones and passenger jets, the two businesses mentioned in the duopoly have a very large portion of the industry and most of the people rely on them.

Mastercard (MA) and Visa (V) are regarded as a duopoly. In the European Union, the two largest banks control more than 80% of all card transactions. The (ECB) is attempting to demolish the duopoly as a result of its dominance. Interchange fee limitations have been attempted by the ECB thus far, but a new plan that would enable fast payments using national credit card networks throughout European nations has the potential to revolutionize the industry.

The usage of Visa and Mastercard's international services would be rendered unnecessary with the establishment of an immediate payment infrastructure in Europe. Another recommendation is to eliminate the need for conventional cards entirely by enabling instantaneous payments at each point of sale or engagement.

The market for carbonated drinks, which is dominated by PepsiCo and Coca-Cola, is a typical illustration of a duopoly. In order to stay competitive with these two industry titans, new businesses must incur significant resources for brand awareness, advertising, and distribution. Because of their capacity to regulate soft drink supply and costs, PepsiCo and Coca-Cola find it challenging to compete in the market.

Benefits and Drawbacks of a Duopoly

Duopolies may affect consumers and the businesses that make up the duopoly in both positive and bad ways. Since there are no rival businesses, the two businesses may first collaborate to optimize their revenues. Stated differently, a collusive helpful equilibrium exists. In a duopoly, businesses are free to focus on enhancing their current offerings rather than feeling compelled to develop new goods for the market.

The customer gains from the two firms' competition as it keeps prices somewhat under control and prevents them from becoming monopoly rates. The restriction of free commerce is one of the duopolies' drawbacks. A duopoly results in a restricted number of alternatives for consumers and a homogenous supply of products and services. It is also challenging for new rivals to enter the market and increase their market share. In a duopoly, innovation is inhibited by the lack of rivals. In a duopoly, prices could be higher for customers when there is no competition to drive down costs.

In duopolies, price fixing, and coordination are possible, resulting in higher prices and fewer options for customers.

Pros:

Here are some of the benefits of duopoly.

• By working together to increase earnings, the two businesses gain.
• Businesses no longer need to be concerned about disruptors or participate in pointless rivalry all the time.
• The competition between the two businesses could be able to limit prices.

Cons

There are some cons associated with the duopoly. Some of them are listed below.

• Trade on the open market and the entry of new businesses are prohibited.
• Innovation and advancement in the industry may be restricted.
• Customers' options are restricted.
• Consumers may pay more as a result of price fixing and collusion.

The Bottom Line!

Today's marketplaces are plenty of examples of duopolies; two examples are the two companies Samsung and Apple in the smartphone business and Coca-Cola as well as Pepsi in the beverage sector. The main drawback of oligopolies, monopolies, and duopolies—which are a type of oligopoly—is that the participating corporations have the ability to control markets, work together, and raise expenses for customers.