The kinked demand theory attempts to explain why an oligopolistic firm:
A) has relatively large advertising expenditures.
B) fails to invest in research and development.
C) infrequently changes its price.
D) engages in excessive brand proliferation.

Question

Quizplus · Accepted Answer

The kinked demand theory suggests that in an oligopoly market, a firm's rivals will match any price decrease it makes, but will not necessarily match any price increase. This leads to a "kinked" demand curve for the firm, with a relatively elastic demand for price decreases and a relatively inelastic demand for price increases. Therefore, the firm has an incentive to maintain its price and avoid price wars with its competitors.

The Kinked Demand Theory Attempts to Explain Why an Oligopolistic