Kinked demand curve
Definition. The kinked demand curve is a model of oligopoly explaining why prices tend to be stable. It assumes rivals match a firm price cuts but ignore its price rises, so the demand curve is relatively elastic above the current price and relatively inelastic below it, producing a kink at the prevailing price.
The kink creates a discontinuity in marginal revenue, so marginal cost can vary within that gap without changing the profit maximising price and output. This helps explain observed price rigidity in oligopolistic markets.
This term belongs to Oligopoly in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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