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Tickers in this Article: LABS, DGX, UPS, FDX, KO, PEP
The best company to own would be one that had no competitors. In professional terms, such a business would be known as a monopoly. Of course, we know from history the problem with monopolies. Without any competition, a company could charge its customers any price it wanted and they would have to take it. The solution to monopolies is regulation. Imagine what your electric bill could be if utility prices were not regulated. (To learn more, see Monopolies: Corporate Triumph And Treachery.)

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The Next Best Thing
Nevertheless, there are industries with duopolies or three or four firms that have a dominant market share. Monopolies they are not, but there is plenty of room to profit when you share the whole pie with one or two other competitors. If you examine duopolistic industries today, you will also notice fantastic value creation over a period of many years. Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) are two great examples. Look at a chart at both companies for the past 20 years and you will see tremendous value creation not only from stock price appreciation, but from continuous dividend payments as well. When it comes to shipping packages, most choose between UPS (NYSE:UPS) or FedEx (NYSE:FDX), another strong sign of market dominance. In the past 10 years, shares in FedEx have appreciated by over 110% - and that's not including dividend payments.

Testing, Testing
An industry that investors may wish to consider with a duopoly is the medical diagnostic business. While there are many smaller players in the industry, Lab Corp (NYSE:LH) and Quest Diagnostics (NYSE:DGX) are the two dominant players in the $45 billion medical testing market. Hospital tests account for two thirds of this market with the remaining amount outsourced - Quest and Labs account for 80% of all outsourced medical tests. More importantly, the industry appears to have some solid future growth potential. As people age, the need for more tests grows. In the United States, the retiring baby boomer population should bode well for this industry.

The bigger of the two companies is Quest, although LabCorp possesses the stronger balance sheet and margins. Yet both companies are clearly benefiting from their duopoly status. Operating margins are 18% and 20% for Quest and LabCorp, respectively. Return on equity is also quite attractive at 27% for LabCorp and 19% for Quest.

Dominance Pays
Being the dominant player or players in your respective industry is one of the most valuable competitive advantages you can hope for in a business. In looking at past and present companies with this edge, you notice a successful track record of shareholder value creation. (For more, check out Which Is Better: Dominance Or Innovation?)

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