The duopoly it is a defined type of oligopoly consisting of just two bidders. It is a form of market in which a very small number of sellers participate. This is to control and accumulate the sales of some particular products. It behaves as if it were a monopoly, that is, as if there were only one seller in the market.
When two companies offer the same product to meet a competitive market demand, there is a duopoly. As in the monopoly, it is the companies that define the course and development of the activity.
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In this article you will find:
Duopoly characteristics
The main characteristic of duopoly is that it is made up of two different companies that come together to produce the same product and that, in addition to controlling the market, set prices and use them to exercise control over products within the activity that develop. In summary:
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- The producer is a group made up of only two companies.
- Prices are influenced and defined by the participants.
- In addition to choosing the products, the two companies have to be able to set prices and control activity within the market.
- Although there are some barriers to participate and enter the market, these are possible to be intervened.
- The agreed products can be uniform or differentiated.
- When companies set prices together, they may have the ability to prevent new competitors from entering the market.
Types of duopoly
There are basically two types of duopoly. The one that uses the Cournot model and the one that uses the Bertrand model.
Cournot model
This model focuses on the interrelation that exists between two firms that are competing and whose movements and results directly influence the production of the other. That is, they work taking into account the decisions of the competition.
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In the Cournot model, each of the two firms reacts to the other's production standards or patterns.
In this model, the company knows the value and quantity of production of the company with whom it is competing and, based on this information, organizes its own production.
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Bertrand model
In a duopoly, this model proposes an adequate interrelation between the two companies whose operation emphasizes price management, in such a way that the two companies are able to function independently of each other.
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This model assumes that companies make similar products. Their competition is carried out through the establishment of prices that must be done simultaneously.
Each of the organizations trusts that the other will not change prices due to their possible variation.
Quality and duopoly
Quality is considered as full compliance with regulations, policies and any other regulations and whose compliance by the company reflects a standard degree of quality in its services and merchandise, as well as in the processes of production.
One of the components used to determine quality is the one that uses the achievement of excellence, both in the product and in the process. However, there are no clear indicators or signals to measure it objectively.
Another factor is that which is based on the consumer and has to do with their satisfaction or not, or how much the customer is satisfied. The problem with this approach is the existence of a continuous change in customer expectations, especially due to the incorporation of new products.
The production process is also used to determine quality. It seems to be a more realistic indicator as it is based on concrete and quantitative aspects of the process. In this case, the problem is that it only emphasizes the internal of the company.
Value is another factor that is also used to measure quality. This has to do with the relationship of price and cost. That is to say, the quality will result and will be subject to the value that is given to the customer when he buys the product.
The value takes into account the difference between the benefits received by the customer and the total cost incurred by the company for its production.
Advantages of the duopoly
- Cooperation between companies is used in order to achieve profit.
- A friendly competition is generated between companies to seek higher profits.
- To optimize their profits, companies follow up on each other's decisions to agree on prices and production of goods and services.
- In a duopoly market, the most benefited are the customers, since the monopoly price has been eliminated.
Disadvantages of duopoly
- It affects the development of free trade between companies.
- It is not possible to offer diverse offers of goods and services since this would require a large economic investment.
- The two companies will clash to improve or impose maximum prices.
- Sometimes the intervention of the State is necessary in order to establish service and price controls and thus avoid speculation.
Importance of the duopoly
A duopoly It is a market activity made up of two companies. It is located in an intermediate position between a monopoly (where there is only one seller) and a type of open competition economy (where the number of sellers can be infinite).
It is important to note that, in a duopoly where companies are responsible for marketing a specific product and they manage to dominate the market, they also have the advantage of being able to exercise greater control of that activity.
A duopoly can have as much impact on society as a monopoly can, as long as the two participating companies, which provide the same product or service, agree on the prices and the quantity of production.
Equilibrium is achieved when indirect price agreements are reached, allowing determine the quantity to be produced and thus be able to fully satisfy the demand of the consumers.
