The perceived demand curve for a group of competing oligopoly firms will appear kinked as a result of their commitment to
A) match price increases, but not price cuts.
B) stand at opposite ends of the competition spectrum.
C) match price cuts, but not price increases.
D) stand at the high point of the competition spectrum.

Question

Quizplus · Accepted Answer

The kinked demand curve theory for oligopolies suggests that firms will match price cuts to avoid losing customers to competitors, but will not match price increases, as they fear losing market share. This behavior leads to a kinked demand curve, where the curve is more elastic for price increases (demand falls significantly with a price increase) and less elastic for price cuts (demand does not increase as much with a price decrease).

The Perceived Demand Curve for a Group of Competing Oligopoly