What is a 'Duopoly'?

A duopoly is a situation where two companies own all or nearly 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 collude on prices or output. Collusion results in consumers paying higher prices than they would in a truly competitive market, and it is illegal under U.S. antitrust law.

BREAKING DOWN 'Duopoly'

In a duopoly, two competing businesses control the majority of the market sector for a particular product or service they provide. A business can be part of a duopoly even if it provides other services that do not fall into the market sector in question. For example, Amazon is a part of the duopoly in the e-book market but is not associated with a duopoly in its other product sectors, such as computer hardware.

Examples of Duopolies

Boeing and Airbus have been considered a duopoly for their command of the large passenger airplane manufacturing market. Similarly, Amazon and Apple dominate the e-book marketplace. While there are other companies in the business of producing passenger planes and e-books, the market share is highly concentrated between the two businesses identified in the duopoly.

Collusion

Collusion involves an agreement between competing entities with the purpose of manipulating the market often by inflating prices. For example, in 2012, Apple was accused of colluding with publishers to artificially inflate the prices of e-books offered through the iBookstore service. The accusation included charges of conspiracy between Apple and five publishers, suggesting that pricing was fixed creating an unfair situation within the consumer market.

Oligopoly

An oligopoly exists when a few businesses control the vast majority of a market sector. While a duopoly qualifies as an oligopoly, not all oligopolies are duopolies. For example, the automobile industry is an oligopoly because there are a limited number or producers, but more than two, who must respond to worldwide demand.

Monopolies

A closely related concept is a monopoly, a situation in which a single company dominates the market. The United States Postal Service (USPS), which is by law the sole provider of first-class mail services, is an example of a monopoly; however, USPS does not hold a monopoly over other shipping services, such as parcels, because these services are not covered within the law.

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