An oligopolist faces a demand curve that is steeper at higher prices than at lower prices.Which of the following is most likely?
A) The firm competes with others in the Cournot fashion.
B) Other firms match price increases but do not match price reductions.
C) Other firms match price reductions but do not match price changes.
D) The firm competes with others in the Bertrand fashion.

Question

Quizplus · Accepted Answer

The demand curve being steeper at higher prices than at lower prices suggests that consumers are less sensitive to price increases (perhaps due to a lack of close substitutes), but more sensitive to price decreases. This behavior is consistent with a situation where other firms match price increases but do not match price reductions, making the firm's demand curve more elastic at lower prices. This is a characteristic of kinked demand curves often associated with oligopolistic markets where firms may follow a strategy of matching price increases to maintain market share but not matching price decreases to avoid a price war.

An Oligopolist Faces a Demand Curve That Is Steeper at Higher