Some economists have suggested that oligopolists tend to maintain stable prices when there are changes in the demand for their products or in their costs of production. Which of the following models provides an explanation for this type of behavior?
A) Price leadership
B) Centralized cartel
C) Prisoners' dilemma
D) Kinked demand curve

Question

Quizplus · Accepted Answer

The kinked demand curve model explains why oligopolists might keep prices stable despite changes in demand or production costs. It suggests that if a firm raises its prices, competitors will not follow, leading to a loss in market share for the firm that increased prices. Conversely, if a firm lowers prices, competitors will also lower their prices to maintain their market share, leading to a situation where no one benefits from changing prices. This creates a situation where prices become rigid or "kinked" at the current level.

Some Economists Have Suggested That Oligopolists Tend to Maintain Stable