What Is a Duopoly?

A duopoly is a situation where two companies together 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.

Key Takeaways

  • A duopoly is a form of oligopoly, where only two companies dominate the market.
  • The companies in a duopoly tend to compete against one another, reducing the chance of monopolistic market power.
  • Visa and Mastercard are examples of a duopoly that dominates the payments industry in Europe and the United States.

Duopoly Explained

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.

A duopoly is a form of oligopoly, and should not be confused with monopoly, where only a single producer exists and controls the market. With a duopoly, each company will tend to compete against the other, keeping prices lower and benefiting consumers. However, since there are only two major players in an industry under a duopoly, there is some likelihood that a monopoly could be formed, either through collusion between the two companies, or if one goes out of business.

An oligopoly exists when a few businesses control the vast majority of the 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 of producers, but more than two, who must respond to worldwide demand.

Collusion Practices

Collusion involves an agreement between competing entities with the purpose of manipulating the market often by inflating prices. As described in this article from The Washington Post, 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 a conspiracy between Apple and five publishers, suggesting that pricing was fixed creating an unfair situation within the consumer market.

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.

Real World Examples

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.

Visa (V) and Mastercard (MA) are considered duopoly. The two financial powerhouses own over 80% of all European Union card transactions. This dominance has led the European Central Bank (ECB) to try to find ways to break up the duopoly as outlined in an article by "FinExtra.com." So far, the ECB has tried interchange fee caps, but a new scheme that would allow instant payments using national payment cards across 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 points of interaction or points of sale so that the need for the traditional cards would disappear altogether.