It is a specific type of oligopoly where only two producers exist in one market. In reality, this definition is generally used where only two firms have dominant control over a market. Duopoly provides a simplified model for showing the main principles of the theory of oligopoly: the conclusions drawn from analysing the problem of two sellers can be extended to cover situations in which there are three or more sellers. If there are only two sellers producing a commodity a change in the price or output of one will affect the other; and his reactions in turn will affect the first. In other words, in duopolies there are two variables of interest: the prices set by each firm and the quantity produced by each firm.

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