Sticky prices are an outcome of the kinked demand model because:

Question

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The kinked demand model suggests that if a firm increases its price, other firms will not follow suit and will instead keep their prices unchanged, leading to a significant loss in market share for the firm that increased its price. Similarly, if a firm lowers its price, other firms are likely to follow, limiting the potential gain in market share for the firm that lowered its price. In this situation, firms may have no incentive to change their prices, resulting in sticky prices even if marginal costs vary somewhat.

Sticky Prices Are an Outcome of the Kinked Demand Model