Duopoly theory (1838)

First posited by French economist Antoine Augustin Cournot (1801-1877), duopoly theory examines the interaction of two firms in a market: each firm’s output and prices are determined by the decisions of the other.

Cournot’s model examined the reactions of the firms based on their output decisions, concluding that if one firm altered its output the other firm would also change its output by the same quantity.

Eventually both firms would expand to an equilibrium point at which they would share the market and only retain normal profits.

A later model by Joseph Bertrand (1822-1900) concentrated on price changes and concluded that if one firm altered its price and the other firm followed, both firms would eventually reach a position from which neither would wish to depart (equilibrium).

Also see: bertrand duopoly model, collusion theory, cournot duopoly model

Source:
A Cournot, Richerches sur les principes mathema-tiques de la thiorie des richesses (Paris, 1838);
M Shubik, Strategy and Market Structure (New York, 1959)

A duopoly (from Greek δύο, duo (two) + πωλεῖν, polein (to sell)) is a type of oligopoly where two firms have dominant or exclusive control over a market. It is the most commonly studied form of oligopoly due to its simplicity. Duopolies sell to consumers in a competitive market where the choice of an individual consumer can not affect the firm. The defining characteristic of both duopolies and oligopolies is that decisions made by sellers are dependent on each other.