Final answer:
The market structure described where two firms comprise the entire soft drink market is known as a duopoly, which is a specific type of oligopoly that is typical when only two companies control a market. Not to be confused with monopolistic competition or a Nash equilibrium, a duopoly involves strategic interactions between the two dominant firms.
Step-by-step explanation:
If two firms comprise the entire soft drink market, the market structure can be described as a particular form of imperfect competition given this context. While there are different types of market structures, the one that best fits a market dominated by two firms is known as an oligopoly.
In an oligopoly, there are high barriers to entry and the few firms that exist have significant market power, often engaging in strategic decision-making based on the actions of the other firms in the market.
Particularly, when only two firms exist in a market, it is termed a duopoly. A duopoly is a special case of an oligopoly where just two companies wield control over a market.
Examples of duopolies include the commercial aircraft market (dominated by Boeing and Airbus) and, fittingly, the U.S. soft drink market, which is heavily influenced by the presence of Coca-Cola and Pepsi. These firms can either compete with one another or engage in collusion to maximize their profits, similar to what happens in a monopoly.
The most pertinent type of market structure for the question at hand is not monopolistic competition or a Nash equilibrium but rather duopoly, which is a specific type of oligopoly. Therefore, considering our options: a. duopoly suits the description of the market which is comprised entirely by two firms.