Posted in Finance, Accounting and Economics Terms, Total Reads: 86
Duopoly is defined as a case where two producers are dominating the market for a particular product. Duopoly is a type of oligopoly which means there are very few competitors and has an impact on market similar to monopoly in some respects where consumers are bullied by duopolists. Also formation of cartel among duopolists can lead to consumers paying substantially higher prices than actual price of product. So government tries to curb monopoly and duopoly to keep market competitive and avoid exploitation of consumer.
There are two models of duopoly which are Cournot duopoly and Bertrand duopoly models. In Cournot duopoly model two duopolists compete with each other on basis of production volume. One competitor assumes a certain production level of competitor and decides its own production level according to that. In this case fix production level is measured in terms of monetary value and thus generally prices are not changed in this type of model. In Bertrand duopoly model one competitor lowers the prices and assumes that other competitor will not follow it.But this trend continues due to same thought process of both competitors which leads to lowering of profit margins and helps consumers in the process. Ultimately a common price is determined and this type of equilibrium is known as Nash equilibrium.
Visa and MasterCard is an example of duopoly in electronic payment processing method. Also, Uber and Ola cabs in India is an example of duopoly in cab aggregator market. Duopoly exist in short term most of the times and in long term price elasticity eliminates duopoly.