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What is a Duopoly?
Duopoly occurs when the total market of a product or service or most of the market is controlled by only two corporations. It is the very basic form of oligopoly. For example, Company X and Company Y provide internet service in a market and there are no other companies providing the same service in that market. This is a duopoly situation. In this market situation, a company needs to consider the reaction of its sole competitor while exerting market control of the product or service. At times these two corporations collude on prices or output when exerting market control. This has the same impact as a monopoly. The customers need to pay a higher price in absence of a truly competitive market. This is illegal in the U.S.
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When does a Duopoly Arise?
A company can be a part of duopoly for a particular product while their other products do not necessarily fall under a duopoly situation. In the U.S. Apple and Amazons dominate the e-book marketplace, there are other players who offer e-books but these two corporations own the most of the market. Most of the businesses are concentrated between these two companies. Apple and Amazon both are engaged in the businesses of other products too where they face competition from other players. The two competing companies in a duopoly may collude to artificially inflate the prices of a product. These are generally an informal agreement between the two companies and as there are no other companies providing the same product or service the customers are bound to buy their products at that inflated price. Duopoly is not an ideal market situation as it poses threat to the concept of free market economy.
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