The kinked demand curve explains why __________ occurs in oligopoly even when costs change
A) collusion
B) oligopolistic competition
C) price rigidity
D) marginal revenue rigidity
E) the kink

Question

Quizplus · Accepted Answer

The kinked demand curve model suggests that in an oligopoly, firms are reluctant to change prices even when costs change, leading to price rigidity. This is because firms believe that if they raise prices, competitors will not follow, causing them to lose market share, but if they lower prices, competitors will match the price cuts, leading to a price war with no gain in market share.

The Kinked Demand Curve Explains Why __________ Occurs in Oligopoly