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The Kinked-Demand curve theory is an economic theory regarding oligopoly and monopolistic competition. Kinked demand was an initial attempt to explain sticky prices. Theory
The kinked demand curve for a joint profit-maximizing oligopoly industry can model the behaviors of oligopolists' pricing decisions other than that of the price leader. Above the kink, demand is relatively elastic because all other firms' prices remain unchanged.
In order to distinguish themselves well, these firms can compete in price, but more often, oligopolistic firms engage in non-price competition because of their kinked demand curve. In the kinked demand curve model, the firm will maximize its profits at Q,P where the marginal revenue (MR) is equal to the marginal cost (MC) of the firm.
The graph below depicts the kinked demand curve hypothesis which was proposed by Paul Sweezy who was an American economist. [29] It is important to note that this graph is a simplistic example of a kinked demand curve. Kinked Demand Curve. Oligopolistic firms are believed to operate within the confines of the kinked demand function.
However, depending on the assumptions made in the theoretical model on the information available to all firms, there are some outcomes, based on Cooperative Game Theory, where collusion may have higher efficiency than if firms did not collude. [13] One variation of this traditional theory is the theory of kinked demand. Firms face a kinked ...
From January 2011 to December 2012, if you bought shares in companies when Anne M. Finucane joined the board, and sold them when she left, you would have a 37.9 percent return on your investment, compared to a 12.1 percent return from the S&P 500.
Social Security serves as a lifeline for tens of millions of seniors. Today, that number is growing. As of December 2024, the Social Security Administration (SSA) reported that about 65.5 million...
Sweezy did pioneering work in the fields of expectations and oligopoly in these years, introducing for the first time the concept of the kinked demand curve in the determination of oligopoly pricing. [3] Harvard published Sweezy's dissertation, Monopoly and Competition in the English Coal Trade, 1550–1850, in 1938.