Oligopolies with kinked demand curves change their prices quickly and frequently.

Question

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Oligopolies with kinked demand curves do not change their prices frequently as the demand curve is relatively inelastic in the current price range. The kink in the demand curve means that if a firm raises its price, it may lose a significant share of its market as customers switch to the lower-priced rivals. On the other hand, if it lowers its price, it may not gain many customers as rivals will likely match the price. Therefore, there is little incentive for firms to change their price, and price wars are unlikely to occur.

Oligopolies with Kinked Demand Curves Change Their Prices Quickly and Frequently