The kinked demand curve model of oligopoly explains why oligopoly
A) firms cannot maximize their profits
B) firms do not lower prices to increase market share
C) firms tend to increase price
D) firms tend to decrease price to their minimum ATC
E) tends to generate a higher economic profit than in any other market structure

Question

Quizplus · Accepted Answer

The kinked demand curve model suggests that oligopoly firms may not lower prices because such actions could lead to price wars with competitors, while price increases may not be matched by those competitors, leading to a loss of market share. This creates a situation where prices tend to be rigid.

The Kinked Demand Curve Model of Oligopoly Explains Why Oligopoly