monopoly and duopoly

MONOPOLY AND DUOPOLY

Presented by- Shubhi Verma

MONOPOLY

Meaning

• A market structure in which only one producer or seller exists for a product that has no close substitutes.

• No close substitutes – unique product• Price maker – control over price

Characteristics of monopoly

• Single Seller• No Close Substitutes• Price Maker• Blocked Entry• Non-price Competition• Availability of information(Imperfect)

Monopoly…• Monopolies exist because of barriers to entry into a

market that prevent competition. ex:-railways, electricity.

• There are three general classes of barriers to entry(CAUSE):– Natural barriers, the most common being economies of

scale– Actions by firms to keep other firms out– Government (legal) barriers

Economies of sale• In some industries, the larger the scale of production,

the lower the costs of production.

• Entrants are not usually able to enter the market assured of or capable of a very large volume of production and sales.

• This gives incumbent firms a significant advantage.

• Examples are electric power companies and other similar utility providers.

Government

• Governments often provide barriers, creating monopolies.

• As incentives to innovation, governments often grant patents, providing firms with legal monopolies on their products or the use of their inventions or discoveries for a period of 17 years.

Types of monopolies• Natural monopoly: A monopoly that arises from economies of

scale. The economies of scale arise from natural supply and demand conditions, and not from government actions.

• Local monopoly: a monopoly that exists in a limited geographic area.

• Bilateral Monopoly: only one buyer, very rare ex; expensive defence goods-govt.is single buyer.• Regulated monopoly: a monopoly firm whose behavior is

overseen by a government entity.• Monopolization: an attempt by a firm to dominate a market or

become a monopoly.

DUOPOLY

Introduction• Two Words Duo---Two Polies---Sellers• Market with TWO sellers• Just below Monopoly• Simplest Form of Oligopoly• Have Power to control Market• Super Normal Profits• Two Classifications: One in which there is coordination b/w duopolists. One in which there is no coordination.

Meaning• A situation in which two companies control all or

nearly all of the market for a given product or service. • A Duopoly is the most basic form of oligopoly, which is

a market dominated by a small number of companies. • A Duopoly can have the same impact on the market

as a Monopoly if the two players collude on prices or output. Collusion results in consumers paying higher prices than they would in a truly competitive market and is illegal under U.S. antitrust law.

Meaning (cont…)

• A duopoly, quite simply, is a situation where there are just two sellers in a market. A duopoly can also refer to a situation where a market is dominated by two sellers. There may be more than two sellers in the market but the supply of the product is controlled by just two of them.

Examples

• Boeing and Airbus have been called a duopoly for their command of the large passenger airplane market.

• Similarly, Amazon and Apple have been called a duopoly for their dominance in the e-book marketplace.

Features

• Two firms

• Strong price control

• Barriers to entry

Advantages Disadvantages• Close competition• Interaction

• Establishment of New firms is difficult due to Duopolies.

• Lack of new firms means lack of new products which leads to Stale in the market.

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