The existence of a kinked demand curve under oligopoly conditions may result in
A) volatile prices
B) competitive pricing.
C) prices above the monopoly price.
D) an increase in the coefficient of variation of prices.
E) stable prices

Question

Quizplus · Accepted Answer

The kinked demand curve model under oligopoly conditions suggests that firms will be reluctant to change their prices because an increase in price would not be followed by competitors (leading to a loss of market share), while a decrease in price would be matched by competitors, leading to no gain in market share but lower profits for all. This leads to price stability in the market.

The Existence of a Kinked Demand Curve Under Oligopoly Conditions