Duopoly – Basic Models & Implications for Pricing

Duopoly is a special case of oligopoly with only two firms.

1. Meaning of Duopoly

Duopoly is a market structure with two dominant sellers producing either homogeneous or differentiated products, where each firm’s decisions affect the other.

Examples: Two major cola brands dominating a segment.

2. Basic Duopoly Ideas (Without Maths)

Economics literature has several models (Cournot, Bertrand, Stackelberg etc.). For BCOM level, focus on conceptual ideas:

• Output competition (Cournot type) – each firm chooses output assuming other’s output fixed.
• Price competition (Bertrand type) – each firm chooses price assuming rival’s price fixed.
• Leadership model (Stackelberg type) – one firm acts as leader, the other as follower.

Loading diagram…

3. Implications for Pricing

• Each firm must anticipate rival’s reaction before changing price.
• Price wars may occur if both cut prices aggressively.
• Sometimes firms prefer stable prices and compete on quality, branding, promotion.

4. Quick Revision Points

• Duopoly: only two firms dominate market.
• Decisions of one firm strongly affect the other.
• Different conceptual models: output competition, price competition, leadership.
• Pricing needs strategic consideration of rival’s behaviour.

5. Quiz Time 🎯

Loading quiz…