Economists have a particular fondness for studying what Democrats and Republicans have become: the longest-lived duopoly in American history. The Nobel Prize-winning economist John Forbes Nash (the subject of the book and movie "A Beautiful Mind") was all about duopolies. He showed that two powerful competitors frequently end up locked in a stable, mutually beneficial dance of tit-for-tat—they collude, in short, to carve up a captive market.The Wall Street Journal's community section is also holding a discussion of the question: "Would you vote for a third party?" In the corresponding online poll, there are currently over 1600 "yes" votes and only 325 "no" votes.
Economists have paid less attention to the chief vulnerability of duopolies: How collusion against the interests of customers produces an inevitable revolt, sweeping one or both dominant players into the dustbin of history.
In a widely circulated 2009 paper surveying the economic literature on the topic, the late Larry F. Darby presented a list of classic duopolies, including such familiar pairings as MCI and AT&T, and Macy's and Gimbels. Tellingly, several of the players no longer existed: MCI (then known as WorldCom) became history's largest bankruptcy in 2003; Gimbels was the country's dominant department store chain in the 1930s but went out of business in 1987.
There is nothing inherently stable about two organizations dominating a particular market in the hurly-burly of modern American life. In fact, there are many reasons to suspect that such arrangements are unstable—particularly when technology allows captive consumers to flee.
Matt Welch and Nick Gillespie from Reason Magazine have a new book out: Declaration of Independents, How Libertarian Politics Can Fix What's Wrong with America. I have not read the book, but its release has led to a number of interviews and articles discussing the two-party state in at least a semi-critical register. Today, the two have an essay adapted from the book in the Wall Street Journal, entitled "Death of the Duopoly." After summing up polling data showing the rise in Independent affiliation, the brunt of the piece discusses the Republican-Democrat two-party state in comparison with familiar duopolies from the private sector, arguing that such economic configurations are never as stable as they might appear. Ironically, however, though the headline declares the "death of the duopoly," the piece concludes on a cowardly note by regurgitating the conventional wisdom that two-party state isn't going away any time soon: "Such new configurations do not mean that the Democrats and Republicans will disappear anytime soon." Excerpt: