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Kinked Demand Curve

The kinked demand curve model assumes that a business might face a dual demand curve for its product based on the likely reactions of other firms to a change in its price or another variable. The kinked demand curve suggests periods of price stability or price stickiness between rival firms.

The kinked demand curve is a graphical representation of the price-quantity relationship in an oligopoly, a market structure characterised by a small number of firms that are able to influence the market price.

The kinked demand curve model suggests that firms in an oligopoly will not respond to changes in their rivals' prices in a uniform way. Instead, they will be more likely to maintain their own prices if their rival raises its price, but will be more likely to lower their own prices if their rival lowers its price. This asymmetric price adjustment leads to a kink, or bend, in the demand curve at the existing market price. The kinked demand curve model is used to explain the stability of prices in oligopoly markets, as well as the reluctance of firms to engage in price competition.

Non-price competition may dominate in the battle for market share.

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