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Updated: Aug 20, 2021

The market situation in which there are only two seilers of a particular good or services. The essence of this situation is that the actions of one seller affect the position of the other and will induce some sort of response from him. Each firm cannot then predict the precise conseq uences of i ts own actions unless it can also predict the reaction of its competitor. This is the characteristic problem of oligopoly in an acute and simplified form, so the duopoly mode! was often used to analyse oligopolistic situations. Without assuming something about the reactions of the two firms in vol ved, it is impossible to find a determinate equilibrium solution in the market. However, one problem is that there is a range of possible assumptions which could be chosen and which generally give different results.

Reference: The Penguin Dictionary of Economics, 3rd edt.

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James Knight
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James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the… read more.