What is a duopoly?
A duopoly is a situation in which two companies hold all or almost all of the market for a given product or service. A duopoly is the most basic form of oligopoly, a market dominated by a small number of companies. A duopoly can have the same impact on the market as a monopoly if the two players work together on prices or production. Collusion causes consumers to pay higher prices than they would in a truly competitive market, and this is illegal under US antitrust law.
Duopolies in today’s markets
In a duopoly, two competing companies control the majority of the market sector for a particular product or service they provide. A company can be part of a duopoly even if it provides other services which do not fall within the market sector in question. For example, Amazon is part of the duopoly in the e-book market but is not associated with a duopoly in its other product areas, such as computer hardware.
Key points to remember
- A duopoly is a form of oligopoly, where only two companies dominate the market.
- Monopolies, oligopolies and collusion are all examples of duopolies.
- Visa and Mastercard are a duopoly that dominates the payments industry in Europe and the United States.
Examples of duopolies
Boeing and Airbus were considered a duopoly for their mastery of the large passenger aircraft manufacturing market. Likewise, Amazon and Apple dominate the e-book market. Although there are other companies in the production of passenger aircraft and e-books, the market share is highly concentrated between the two companies identified in the duopoly.
Collusion involves an agreement between competing entities in order to manipulate the market often by inflating prices. As described in this article from The Washington Post, in 2020, Apple was accused of colluding with publishers to artificially inflate the prices of electronic books offered via the iBookstore service. The charge included charges of plotting between Apple and five publishers, suggesting that the price was fixed, creating an unfair situation in the consumer market.
An oligopoly exists when a few companies control the vast majority of the market sector. While a duopoly is considered an oligopoly, not all oligopolies are duopolies. For example, the automotive industry is an oligopoly because there are a limited number of producers, but more than two, who have to meet global demand.
A closely related concept is monopoly, a situation in which only one company dominates the market. The United States Postal Service (USPS), which is legally the only provider of first-class postal services, is an example of a monopoly; however, USPS does not have a monopoly on other shipping services, such as parcels, as these services are not covered by law.
Example from the real world
Visa (V) and Mastercard (MA) are considered a duopoly. The two financial powers hold more than 80% of all card transactions in the European Union. This dominance has led the European Central Bank (ECB) to try to find ways to break the duopoly as reported in an article in “FinExtra.com”. So far, the ECB has tried to cap interchange fees, but a new system that would allow instant payments using national payment cards in European countries could be a game-changer.
A European infrastructure for instant payments would eliminate the need for people to use the global services of Visa or Mastercard. Another suggestion is to allow instant payments at interaction points or outlets so that the need for traditional cards disappears completely.