Duopoly

The duopoly is a type of competition that occurs within a market that is mainly characterized by the existence of two companies that produce an item and that control the entirety of a specific market , thanks to the joint pricing of goods. that product.

Duopoly companies use price as the main tool to control the market and defend the positions that companies exercise in duopoly work . In this way, when they set prices working together, companies are able to prevent the entry of new competitors that could threaten their dominance in the market. These companies act like a classic monopoly , trying to maximize all their profits by equating their income at marginal cost.of production. In the Duopoly, since there are only two producers of the same product, a change in the price of one of them or the production of one will affect the other and the reactions of the second in turn will influence the first.

Duopoly characteristics

• The two companies that participate in the duopoly are looking for a way to maximize all their profits, looking for a way to match their income through the sale of the product plus the costs involved in producing it.
• The companies agree to share the market in half.
• Industries have the ability to set prices and have the power within the market to calculate and set these prices above marginal cost .
• They produce loss of efficiency, characteristic of monopolies.
• They do not have the ability to allow a competitor to enter.

Duopoly models

There are two types of models when we refer to the duopoly. These are the following:

• The Cournot Model : This model is based on the interaction that occurs between the two companies that are in competition, which are directly affected by changes in the production of the other. This means that companies are going to function attending and depending on the decisions of their direct competition . In other words, the two firms are going to react, each one of them oriented to the changes that occur in the production of the other.
• The Bertrand Model : when there is adequate interaction between the companies, their functions focus on the game produced with the price levels of these companies so that the two companies can function independently of each other. Each of the companies related to each other will be responsible for assuming that the other will not change its prices due to possible price drops .
• The Stackelberg Model : The Stackelberg equilibrium is based mainly on Stackelberg’s theory of competition, which tells us that two or more companies compete in order to completely dominate the market. One of these companies is known as a leading company , it already has a dominant position and because it has a large number of strategies that determine that of its followers or that of its competitors.

Advantages of the duopoly

• Companies are responsible for cooperating with each other to maximize their profits .
• There is a cooperative equilibrium that is known as the collusion equilibrium .
• Companies compete amicably with each other to achieve higher profits .
• Each of the companies is pending the decisions of the other to agree on prices and production. In this way they manage to reach an agreement to optimize their profits.
• As a result of the competition that occurs between duopoly entrepreneurs, consumers are the ones who are favored because in this way the monopoly price has been eliminated

Disadvantages of duopoly

• It affects the possibilities of free trade between companies since they are pending each other.
• You cannot give a diversified supply of goods and services whose production requires a huge amount of capital.
• The theory that competition favors the interests of consumers is very difficult to achieve as the two companies will find themselves fighting to improve prices and impose them.
• On many occasions, the State must intervene in order to control the quality of the goods or services offered and the setting of the maximum prices that are given for sale to the public.

Examples of duopoly

Among the best known examples of duopoly that we can mention are the Visa and MasterCard credit cards . Together, these two cards handle the largest proportion in the electronic card market. Another clear example is the company Coca Cola and Pepsi , which are the largest industries with duopolies in the soft drink market. In Mexico , for example, we can mention Televisa and Tv Azteca , these two television networks are the leading companies in this country.