Hopefully it will be continued

Just Walking past by....

Well, i am going to write an explanation of Kinked demand since i cannot understand the book.(I know i am stupid-.-)

Kinked demand is one of the main theories which explain how oligopolists behave which indicative of price rigidity ( stickiness or stable) in oligopoly.

The two main points are :

If one firm increased its price, the rivals will not follows, therefore the demand will be price elastic, which leads to a fall in total revenue of the firm

If one firm decreased its price, the rivals will also follow to avoid a loss in market share, therefore the demand will be relatively inelastic, which will also leads to a fall in total revenue of the firm.

The kinked demand curve at P1 and Q1 means that there is a discontinuity in marginal revenue curve.


To sum up, the firms are interdependent on each other. Since it is very hard to rise or fall price, they prefer non-price factor competition in branding, location and ext.