Characteristics of a duopoly
1. Two dominant firms: A duopoly consists of only two firms that dominate the market. These firms often have a significant market share and can influence pricing and competition.
2. Interdependence: The actions of one firm in a duopoly can directly impact the other firm. This creates a competitive dynamic where the decisions of one firm can influence the strategies and behaviors of the other firm.
3. Limited competition: Due to the limited number of firms in a duopoly, competition is often limited and firms may engage in strategic actions to maintain their market share and profitability.
4. Pricing power: Firms in a duopoly may have pricing power due to their dominant position in the market. This can lead to higher prices for consumers and reduced competition.
5. Strategic behavior: Firms in a duopoly often engage in strategic behavior, such as price signaling, collusion, or predatory pricing, to gain a competitive advantage over their rival.
6. Barriers to entry: High barriers to entry, such as high startup costs, regulatory requirements, or economies of scale, can make it difficult for new firms to enter the market and compete with the existing duopoly.
7. Oligopolistic behavior: Duopolies often exhibit characteristics of oligopolistic markets, where firms cooperate or compete with each other to maximize their profits. This can lead to stable pricing and market outcomes.