A duopoly is a market where there are only two firms competing against each other. Given the actions from one firm in a duopoly will have a big impact on the other, it is ideal for using game theory to gain insights.
There are several ways that firms could compete in a duopoly. We start by examining a model where firms compete by choosing the quantity they wish to sell, then bring that quantity to the market. This is called a Cournot Oligopoly. There are certain markets where this type of duopoly makes a lot of sense - including with agricultural production, as quantity decisions are often made well in advance (when planting). Then that quantity is brought to the market and the firms compete. For more on a Cournot duopoly, check out this video:
We will be examining another type of duopoly model, the Betrand Duopoly, in the next post, with a clip from I Love Lucy. That’s coming soon!