A kink in the demand curve facing an oligopolist is caused by:
A) rapidly rising marginal revenues.
B) excessive advertising.
C) the belief that competitors will follow price increases but not match price decreases.
D) the tendency of competitors to follow price reductions but not price increases.

Question

Quizplus · Accepted Answer

When competitors follow price reductions but not price increases, it creates a kink in the demand curve for an oligopolist. This is because if the oligopolist raises their price, they will lose a significant portion of their market share as their competitors will not raise their prices in turn. However, if they lower their price, their competitors will also follow suit and lower their prices, resulting in only a small increase in market share for the oligopolist.

A Kink in the Demand Curve Facing an Oligopolist Is