Duopoly may be of two types: (a) Duopoly without product differentiation and (b) Duopoly with product dillcrcntiation.
Duopoly Without Product Differentiation
Under duopoly the simplest cases will be those where the two monopolists arc supposed to be selling an identical commodity and there is no product differentiation. Very likely there will be a collusion between the two. They may agree on a price. or assign quotas or divide the territory in which each is to market is goods. This will specially bc the case if their respective curves are identical or nearly so, and if tlie demand is stable and less clastic. Obviously, this collusion creates conditions almost analogous to a monopoly and the price determination will be similar to that under monopoly. In case. however. there is no agreement between the two. a constant price war will be the most probable consequence. The important factors to be considered thcn would be the cu. t and gam. in driving out thc rival, the relative sizes of the two firms, the demand elasticity and mobility of the purchasers. the promptitude with which the rival reacts to change in the other’s policy and the tent to which price concession can be kept secret. and so un. If there is nu product differentiation and goods arc identical. thc consumers ale indifferent between the two producers and the same price must be charged by both in the long-run, otherwise the one charging more will nut be able to sell any. They must fix a price as if they were a single monopolist rolled in one. Only in that way they will be maximising profits. In case there is a price is a price-war between them, they will be able to earn only normal profits as under perfect competition. their costs arc different. the one with lower costs will squeeze out the other and a simple monopoly would be established. The best CUlU’S for the duopolists will be to fix tile monopoly price and share tile market and profits .