What is the difference between duopoly and oligopoly

Actions Shares. No notes for slide. Few firms: In oligopoly there may be few firms varying from in number. Each firm produces a big share of total supply in the market. Mutual interdependence: there is high degree of mutual interdependence among the firms regarding price and output policy. It means price and output policy of one firm affects the others. All the decisions are taken keeping in mind possible reactions of the other firms.

Homogenous or Heterogeneous: In oligopoly, firms may produce homogenous or heterogeneous products according to their policy and are free to determine their prices accordingly. Intermediate shapes of curves: In oligopoly, shapes of revenue curves cannot be determined because there are few firms in the market and all the decisions regarding price and output policy are taken mutually or through mutual interdependence. So, it is not possible to predict the reaction of the rival firm.

For ex: if firm A increases the price then firm B may react in 3 different manners: i It may increase the price ii It may decrease the price iii It may keep the price as it is i.

There is still competition within an oligopoly, as in the case of airlines. Also, automobile companies compete in the fall as the new models come out.

One will reduce financing rates and the others will follow suit. This creates a high amount of interdependence which encourages competition in non price-related areas, like advertising and packaging. The tobacco companies, soft drink companies, and airlines are examples of an imperfect oligopoly. The result lowers the profit margin for all the companies, but is great for the consumer. Most competition between companies in an oligopoly is by means of research and development or innovation , location, packaging, marketing, and the production of a product that is slightly different than the other company makes.

The major barriers are economies of scale, access to technology, patents, and actions of the businesses in the oligopoly. Barriers can also be imposed by the government, such as limiting the number of licenses that are issued. Existing companies in oligopolies discourage new companies because of exclusive access to resources or patented processes, cost advantages as the result of mass production, and the cost of convincing consumers to try a new product.

The Behavioral Investor Daniel Crosby. Dan Ariely. Related Audiobooks Free with a 30 day trial from Scribd. Views Total views. Actions Shares. No notes for slide. 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 is illegal under U.

Similarly, Amazon and Apple have been called a duopoly for their dominance in 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. There is no fear of immediate retaliatory measures by the rivals ,if one producer changes his price-output policy. There is less danger of price war. Since products are not similar, the firm with better products can earn supernormal profits.

Oligos means several and polies means seller. So it can be said that several sellers market is oligopoly. If a minimum firm produce and operate selling in oligopoly market. There is a small number of seller remains in the market. Few large firms There are a few large firms that dominate the industry. They can influence the price or quantity produced. Firms interact with each other Firms in oligopoly do not act independently of each other. They take into account the likely reactions of their competitors.

Since product are not similar, any producer in oligopoly can raise or lower his price without any fair of losing customers or immediate reaction from his rivals. It is neither much responsive to changes in demand nor to changes in supply.

For instance if demand increases, no firm will venture to raise the price for fear that other firms may not raise the price and it may lose the market. Nor will it lower the price for the fear that the others firms may also lower their price and deprive it of any initial advantage. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Antitrust Laws and Enforcement. Types of Antitrust Violations. Table of Contents Expand.

What Is a Duopoly? Understanding a Duopoly. Duopoly vs. Advantages and Disadvantages. Examples of Duopoly. The Bottom Line. Duopoly FAQs. 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. One disadvantage of duopolies are that consumers have little choice in products.

Another disadvantage of duopolies are that the two players may collude and increase prices for the consumer. Pros The two companies benefit by cooperating to improve profits. Prices may be controlled by the rivalry between the two companies. Cons Free market trading and entrance of new companies is restricted.

Industry innovation and progress can be curtailed. Consumers have limited options. Price fixing and collusion may costs for consumers.

Article Sources. Investopedia requires writers to use primary sources to support their work. In the Cournot model, the strategic variable is the output quantity. Each firm decides how much of a good to produce. Both firms know the market demand curve, and each firm knows the cost structures of the other firm.

The essence of the model is this: each firm takes the other firm's choice of output level as fixed and then sets its own production quantities. The best way to explain the Cournot model is by walking through examples. Before we begin, we will define the reaction curve, the key to understanding the Cournot model and elementary game theory as well.

SparkTeach Teacher's Handbook. Summary Duopolies and Oligopolies. Page 1 Page 2 Page 3.