The ________ demand curve theory states that oligopolists tend to respond aggressively to the price cuts of rivals,but largely ignore price increases.
A) downward-sloping
B) perfectly elastic
C) kinked
D) upward-sloping
E) jagged

Question

Quizplus · Accepted Answer

The kinked demand curve theory explains that if an oligopolist reduces its price below the prevailing market price, it will experience a relatively inelastic response from its competitors, as they fear losing their market share. However, if an oligopolist increases its price above the prevailing market price, it will experience a relatively elastic response from its competitors, as they seek to gain market share by offering lower prices. This results in a kinked demand curve with a vertical section at the current price level, reflecting the inelastic response to price cuts, and a slanted section above the current price level, reflecting the elastic response to price increases.

The ________ Demand Curve Theory States That Oligopolists Tend to Respond