Question

Explain the features of Oligopoly along with kink demand curve.​

Answer 1

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Explain the features of Oligopoly along with kink demand curve.

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In an oligopolistic market, the kinked demand curve hypothesis states that the firm faces a demand curve with a kink at the prevailing price level. The curve is more elastic above the kink and less elastic below it. This means that the response to a price increase is less than the response to a price decrease.

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Answer 2

In oligopoly, prices are rigid in the downward direction mostly.

What it means is that there is no incentive for a seller to reduce prices beyond a level as the others will compete on prices and thus will reach the same price. If prices are increased then many customers will switch over to other sellers. Hence there is no incentive to increase prices either unless the product is well differentiated and has loyal consumer following.

Thus in oligopoly the demand curve is mostly kinked.