Exam - MANAGERIAL ECONOMICS - Term Paper Example

The primary use of the kinked-demand curve is to explain price rigidity in oligopoly. (ii) When oligopolistic firms increase their prices, competing firms may not be able to match the increase in prices of the oligopolies. The oligopolies are likely to lose customers to their competitors. A small increase in price by oligopolies may result in a large decrease in quantity demanded. (iii) Because competing firms are likely to match the price decreases of an oligopolistic firm, the firm is unlikely to gain customers and market share from the competition.

Large price decreases are needed to gain relatively small increases in quantity