Duopoly is the term used in the context of economics where it refers to that market condition in which the whole market of any particular product or service is controlled by two companies and there are no other competitors. In simple words, just like a coin has only two sides in the same way in the case of a duopoly there are only two companies who have complete control over the market of a particular product or service leaving no scope for other competitors to enter and compete with them. In order to get a better idea about this concept, one should look at some of the advantages and disadvantages of a duopoly –
Advantages of Duopoly
Simplicity
The biggest advantage of the duopoly is that it is a very simple concept to understand because in today’s world where there are so many complexities involved this concept is like a breath of fresh air in the sense that as a consumer you have only two options that is you can buy a product from company A or company B and hence decision making becomes easy as compared to that situation where many companies are offering slightly differentiated products thus creating confusion in the minds of the consumer.
Focus on Quality of Product
Another benefit of the duopoly is that it helps the companies in focussing on the quality of products rather than focusing on competitors or marketing strategies which is the case with other types of market structures where the company focuses more on marketing and advertising and less on product quality and customer service. In simple words, in the case of a duopoly, a company can spend money or budget on research and development rather than spending money on marketing and advertising.
Less Attrition Rates
In case of perfect competition and oligopolies the attrition rate of employees is high because due to the similar nature of companies an employee working in one company can easily switch to another company due to many companies but in the case of duopoly since there are only two companies the employees are less likely to leave the company because of lack of companies in the same industry and hence the attrition rate of employees in case of the duopoly is low. In simple words, the human resource department in duopoly companies is more relaxed if one compares it with the human resources department of companies operating in perfect competition or oligopolies.
Disadvantages of Duopoly
Limited Options for Consumers
The most significant disadvantage of the duopoly is that there are limited options for consumers because in the case of a duopoly only two companies are offering products and if the consumer does not like the products of both companies then he or she does not have any option which is not the case with a perfect competition where there are dozens of options available with consumers and he or she can choose the product from those options. In simple words when it comes to consumers they will be at disadvantage due to a lack of choice in case of a duopoly market structure as compared to other market structures like perfect competition or oligopoly.
Exploitation of Consumers
In case of perfect competition chances of consumer, exploitation is next to zero because of the large number of companies present in the market and no company is large enough to have pricing power thus limiting the consumer exploitation but when it comes to duopoly due to the presence of only 2 companies in the market the chances of those two companies having a silent agreement where both keep the prices of the product high thus putting the consumers at a disadvantage. Hence as far as consumers are concerned in the case of a duopoly market structure chances of exploitation of consumers are more.
Duopoly leads to 100 Percent Effort
When you are running a race where there are 20 participants then you give more than 100 percent so as to win the race but when there are only 2 participants in a race then chances are you will be relaxed and will give only 100 percent and not more than 100 percent, the same thing applies to the duopoly. In the case of a duopoly due to the presence of only 2 companies the companies there is that complacency that does not allow companies to give more than 100 percent and we all know how those extra percentages matter when it comes to product innovation and improvements in customer service of consumers.
As one can see from the above that duopoly has pros as well as cons and that is the reason why any company entering into the market which has duopoly characteristics should carefully read the above points and then only should take any decision regarding entering into those products or services which have duopoly market structure.