The duopoly is a type of competition which takes place within a market which is characterized mainly by the existence of two companies which produce an article, and who control the totality of a specific market, thanks to the joint fixing of the prices of that product.
Characteristics of duopoly
- The two companies that participate in the duopoly look for ways to maximize all their profits by looking at how to match their income through the product sale plus the costs involved in producing it.
- 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, a characteristic of monopolies.
- They do not have the capacity to allow competitors to enter.
Advantages of duopoly
- Companies cooperate with each other to maximize their profits.
- There is a cooperative equilibrium that is known as collusive
- Companies compete friendly with each other to generate higher profits.
- Each of the companies is pending on the other’s decisions to agree on prices and production. In this way they are able to reach an agreement to optimize their profits.
- As a result of the competition between duopoly businessmen, consumers are the ones who are favored because monopoly prices have been eliminated.
Disadvantages of duopoly
- It affects free trade opportunities between companies as they are dependent on each other.
- There is no diversified supply of goods and services whose production requires an enormous amount of capital.
- The theory that competition favors consumer interests is very difficult to achieve as the two companies will find themselves struggling to improve prices and to impose
- On many occasions, State must intervene in order to control both the quality of the goods or services offered and the setting of maximum prices offered to the public.