DUOPOLY MARKET

What is duopoly?

 A duopoly is a kind of oligopoly: a market dominated by a small number of firms.

 In the case of a duopoly, a particular market or industry is dominated by just two
firms (this is in contrast to the more widely-known case of the monopoly when
just one companydominates).
 In very rare cases, this means they are the only two firms in the entire market (this
almost never occurs);
 in practice, it usually means the two duopolistic firms have a great deal of
influence, and their actions, as well as their relationship to each other, powerfully
shape their industry.
 Duopolistic markets are imperfectly competitive, so entry barriers are typically
significant for those attempting to enter the market, but there are usually still other,
smaller businesses persisting alongside the two dominant firms
Features of duopoly

 Presence ofmonopoly element- products are differentiated and each

product enjoy some amount of customer loyalty as a result firm
enjoy some monopoly power.
 Pricerigidity exists in this type of market structure. It means price of
product in this market does not change immediately with change in
demand and supply in market.
 In this type of market structure either advertising is done to increase
its sales volume or by improving quality of its product.
 There isinterdependency among firms as no firm can ignore the
action and reaction of its rival firm.
Features of duopoly Contd…

 The demand curve is indeterminate, any step taken by rival firm will
effect firms product demand.

 There exists a conflict attitude among a firm as they have two types
of attitude on one hand they want to have joint venture to increase
their profit and on the other hand they want to earn profit
individually. So these both attitude have conflict among themselves.
Types of Duopoly

 There are two primary types of duopolies:

 The Cournot Duopoly (named afterAntoine Cournot) and

 The Bertrand Duopoly (named after Joseph Bertrand)
The Cournot Duopoly
 Inthe early to mid-1880s, Cournot used his understanding of
mathematics to formulate and publish a significant model of what
oligopolies look like.

 The model, known as the Cournot Duopoly Model (or the Cournot
Model), places weight on the quantity of goods and services
produced, stating that it is what shapes the competition between the
two firms in a duopoly.

 InCournot’s model, the key players in the duopoly make an

arrangement to essentially divide the market in half and share it.
The Cournot Duopoly Contd….

 Cournot’s model speculates that in a duopoly, each company receives

price values on goods and services based on the quantity or
availability of the goods and services.
 The two companies maintain a reactionary relationship in regard to
market prices, where each company changes and makes adjustments
to their respective production.
 Ifone company alters its production levels, the other company must
also alter theirs to maintain the equilibrium of a 50/50 split of the
market.
Cournot model showing equilibrium
One firm reacts to what it
believes the other firm will
produce. In other words, if
firm B produces qB of
output, what quantity
shouldfirm A produce?
The Cournot reaction
function describes the
relationship between the
quantity firm A produces
and the quantity firm B
produces.

Thus in order reach an

equilibrium in profit, firm A
produces 76 units,
whereas firm B produces
86 units.
Bertrand Duopoly

 Bertrand’s critique of Cournot’s model of duopolies is ultimately

what led to the furthering of both oligopoly theory and game
theory, most notably resulting in the formation of his own theory or
model of duopolies, the Bertrand Model.

 The primary difference between Cournot’s model and Bertrand’s

model is that while Cournot believed production quantity would
drive the competition between the two companies, Bertrand believed
that the competition would always be driven by price.
Bertrand Duopoly Contd…

 Bertrand’s duopoly identified that consumers, when given a choice between

equal or similar goods and services, will opt for the company that
gives the best price.

 It would start a price war, with both companies dropping prices, leading
to an inevitable loss of profits.

 The Bertrand duopoly model examines price competition among firms that
produce differentiated but highly substitutable products. Each firm’s quantity
demanded is a function of not only the price it charges but also the price
charged by its rival. Coca-Cola and Pepsi are examples of Bertrand
duopolists.
Bertrand Model
The Bertrand duopoly
model indicates that firm A
maximizes profit by
charging $64, and firm B
maximizes profit by
charging $56. Note that
both the horizontal and
vertical axes on the
illustration measure price
and not quantity.
 Example of a duopoly
The competition between Airbus and Boeing has been
characterized as a duopoly in the large jet airliner market since the
1990s.This resulted from a series of mergers within the global
aerospace industry, with Airbus beginning as a European
consortium while the American Boeing absorbed its former arch-
rival McDonnell Douglas, in 1997. Other manufacturers, such as
Lockheed Martin and Conv. air in the United States, and British
Aerospace(now BAE Systems) and Fokker in Europe, were no longer
able to compete and effectively withdrew from this market.
Flight Global fleet forecasts 26,860 single aisle deliveries for a
$1,360 Billion value at a compound annual growth rate of 5% for
the 2016–2035 period, with a 45% market share for Airbus (12090),
43% for Boeing (11550), 5% for Bombardier Aerospace(1340), 4%
for Comac.(1070) and 3% for Irkut Corporation(810).
Airbus have a 59.4% market share of the re-engine single aisle
market, while Boeing had 40.6%.

In USA , transport drivers may check the prices of fuel while going
to work without stepping out of the car. If two fuel stations offer
the same type of fuel , the driver will go to refuel his / her vehicle
to that particular fuel station which offers the less price.
Advantages of Duopoly

 With so few significant competitors, firms are able to generate

significantly higher profits—practically, consumers must nearly always
choose one of the two

 The market is simpler for consumers, so they do not have to search among
dozens of options to choose the best product or service for their needs

 Financial resources can be put toward refining the quality and functionality of
existing products and services, rather than attempting to create new ones in
order to be more competitive
Disadvantages of Duopoly

 It is very difficult for smaller businesses to enter the industry and

gain a market share, so they often collapse before they can become
competitive
 Less competition means less drive for businesses to produce new
products, which may stifle innovation and the vibrancy of the market
 Limited consumer choice—if consumers are unhappy with the two
big companies’ products, they’ll have almost no alternative options
 Prices will often be higher for consumers when competition is not
driving prices down