In the kinked-demand model of noncollusive oligopoly,if one firm increases its price,the most likely reaction of the other firms will be to:
A) decrease their prices.
B) increase their prices.
C) not change their prices.
D) fix prices.

Question

Quizplus · Accepted Answer

In the kinked-demand model, the demand curve is relatively elastic above the current price and relatively inelastic below it. Therefore, if one firm increases its price, the other firms are likely to maintain their current prices to avoid losing market share. This creates a stable price environment where firms are incentivized to maintain the status quo rather than engage in a price war. Hence, the most likely reaction is for the other firms to not change their prices (choice C).

In the Kinked-Demand Model of Noncollusive Oligopoly,if One Firm Increases