Characteristics of duopoly
1. Market Power: Duopolies have significant market power due to the limited number of firms in the industry. This allows them to have a significant influence on market price and competition.
2. Interdependence: Firms in a duopoly are highly interdependent, meaning that each firm's actions and decisions directly affect the other firm's profits and market position. This can lead to strategic behavior and intense competition between the firms.
3. Price Rigidity: Due to the interdependence between firms in a duopoly, prices are often rigid and stable. Firms may engage in price collusion or tacit agreements to maintain prices at a certain level.
4. Non-price Competition: In addition to price competition, duopolies often engage in non-price competition to differentiate their products and attract customers. This can include advertising, product quality improvements, and customer service.
5. Barriers to Entry: Duopolies often have high barriers to entry, such as economies of scale, brand loyalty, or regulatory restrictions. This makes it difficult for new firms to enter the market and compete with the existing duopoly.
6. Game Theory: Game theory is often used to analyze the strategic behavior of firms in a duopoly and predict their actions in response to each other. Firms may engage in strategic decision-making to maximize their own profits and gain a competitive advantage.
7. Stability: Duopolies are often stable market structures, as the two dominant firms have a vested interest in maintaining the status quo and preventing new competitors from entering the market. This can lead to long-term market dominance and limited innovation.