duopoli

Duopoli, or a duopoly, is a market structure in which two firms hold a dominant share of a market and collectively determine a large portion of its price and output. In such markets, the firms’ strategic choices are highly interdependent; each firm must anticipate the other’s likely responses. Entry barriers, economies of scale, and differentiated products are common features that sustain a duopoly.

Two main analytical approaches describe how firms behave in a duopoly. Cournot models focus on quantity competition, predicting Nash equilibria where each firm chooses output knowing the other’s choice. Bertrand models focus on price competition, predicting outcomes that depend on whether goods are identical or differentiated and whether capacity matters. In homogeneous goods with unlimited capacity, the Bertrand outcome can drive prices toward marginal cost, while product differentiation or capacity limits can allow prices to exceed marginal cost.

Implications for welfare and regulation: duopolies can extract rents and raise prices relative to perfect competition, yet they may also spur efficiency or innovation through rivalry. Government antitrust policy may scrutinize potential collusion or anti-competitive practices, while regulatory environments can affect entry and investment in the sector.

Typical examples cited in economics include the commercial aircraft market (Boeing and Airbus), the global soft drink market (Coca-Cola and PepsiCo), and the microprocessor market (Intel and AMD). Card networks such as Visa and Mastercard are often described as a duopoly in the payments industry.