In the kinked demand curve oligopoly model, a firm that reduces its price will experience:
A) a decrease in sales because the price reduction will signal lower quality.
B) a relatively small increase in sales because its rivals react by lowering their prices too.
C) no change in sales because competitors will lower their prices by an identical amount.
D) a relatively large increase in sales as it captures customers from higher priced competitors.

Question

Quizplus · Accepted Answer

In the kinked demand curve oligopoly model, if a firm lowers its price, it is assumed that competitors will also lower their prices to maintain their market share, leading to a relatively small increase in sales for the firm that initiated the price cut.

In the Kinked Demand Curve Oligopoly Model, a Firm That