Important Facts of Kinked Demand Curve:
Candidates can check the important information regarding the kinked demand curve to help them understand more about it.
- In an oligopoly, the prices are rigid, and firms have to face the heat if they increase or decrease the prices.
- Increasing prices will impact the revenue as the fall in demand is greater than the price rise.
- If one firm decreases the price, other firms will do the same to maintain the market share. It will lead to a fall in overall margins.
- Competition keeps the price stable per the demand of the product in the oligopoly market.
Kinked Demand Curve is a Characteristic of?
A kinked demand indicates price and output rigidity. The demand is more elastic above the kink and less elastic below it. It does not explain which kinks out of many kinks will be the equilibrium. Thus, it is not a theory of pricing but explains that price, once determined, will remain fixed.
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