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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
This model predicts that more firms will enter the industry in the long run, since market price for oligopolists is more stable. [56] 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.
Over the rest of the decade Sweezy wrote prolifically on economics-related topics, publishing some 25 articles and reviews. [3] 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]
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.
In microeconomics, supply and demand is an economic model of price determination in a market. ... for example, an oligopoly or differentiated-product model.
A wave of consumer discontent appears to have helped lift him back into the Oval Office, but Trump now faces the task of how to ease voters' frustration. Food inflation soared to a peak of more ...
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 ...