Saturday  March 25, 2023
 AmosWEB means Economics with a Touch of Whimsy!
 LONG-RUN ADJUSTMENT: The combined adjustment of an industry and of each firm in the industry to an equilibrium condition that based on (1) profit maximization when all inputs are variable and (2) the entry and exit of firms. The complete adjustment is undertaken by both perfect competition and monopolistic competition. There are two parts of this adjustment process. One is the adjustment of each firm to the appropriate factory size that maximizes long-run profit. The other is the entry of firms into the industry or exit of firms out of the industry, to eliminated economic profits or economic losses. The end result of this long-run adjustment is different for the two market structures based on the fact that perfect competition has equality between price and marginal revenue, while monopolistic competition does not.

DUOPOLY:

An oligopoly market structure containing exactly two firms. As an oligopoly, duopoly exhibits the oligopolistic characteristics and undertakes oligopolistic behavior, such as barriers to entry, interdependent actions, and nonprice competition. While duopoly, in its purest form of EXACTLY two firms in the industry, is seldom found in the real world, it does provide an excellent, easy to use illustration of oligopoly. In fact, most instructional analysis of oligopoly generally assumes a two-firm, duopoly market.
Duopoly is a special type of oligopoly market structure that contains only two firms, no more, no less. Duopoly is an ideal model for analyzing oligopoly behavior. With more than one firm, duopoly captures the essence of oligopoly, especially interdependent behavior, while keeping the analysis as simple as possible.

The duopoly model is commonly used to analyze collusion, which results when two firms join together to control the market like a monopoly. Duopoly is ideally suited for collusion analysis. It contains the minimum number of firms needed for an oligopoly and provides all of the insight that would be generated from analyzing three or more firms.

Another model using the duopoly market structure is game theory, which investigates the interdependent actions of two competing firms. Game theory is conceptually and analytically more difficult if more than two firms are included. The essential conclusion can be easily obtained using duopoly.

While the real world seldom contains a pure duopoly market structure, some industries come close. In particular, the duopoly model works well if a market is dominated by two large firms, even though it might contain other smaller ones.

One example that comes close to duopoly is the global market for passenger aircraft. This market is dominated by Boeing (from the United States) and Airbus (from Europe). The vast majority of all passenger airlines use planes manufactured by one of these two firms. Another example might be offered by a small town that contains two grocery stores.

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Recommended Citation:

DUOPOLY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2023. [Accessed: March 25, 2023].

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