Suppose an oligopolistic producer assumes its rivals will ignore a price increase but match a price cut. In this case the firm perceives its

Question

Quizplus · Accepted Answer

This scenario describes the kinked demand curve model of oligopoly, where the demand curve is more elastic for price increases (because rivals won't follow, leading to a loss of customers) and less elastic for price decreases (because rivals will match the price cut, leading to a smaller gain in customers). This results in a demand curve that is steeper below the current price than above, indicating a kink at the current price.

Suppose an Oligopolistic Producer Assumes Its Rivals Will Ignore a Price