economist Sweezy
American economist Sweezy came up with the kinked demand curve hypothesis to explain the reason behind this price rigidity under oligopoly. According to the kinked demand curve hypothesis, the demand curve facing an oligopolist has a kink at the level of the prevailing price.
WHO has developed the kinked demand curve model of oligopoly?
Paul Sweezy
The two seminal papers on kinked demand were written nearly simultaneously in 1939 on both sides of the Atlantic. Paul Sweezy of Harvard College published “Demand Under Conditions of Oligopoly.” Sweezy argued that an ordinary demand curve does not apply to oligopoly markets and promotes a kinked demand curve.
What does kinked demand curve explain?
A kinked demand curve occurs when the demand curve is not a straight line but has a different elasticity for higher and lower prices. The kink in the demand curve occurs because rival firms will behave differently to price cuts and price increases.
Why does oligopoly have kinked demand curve?
The oligopolist faces a kinked‐demand curve because of competition from other oligopolists in the market. If the oligopolist increases its price above the equilibrium price P, it is assumed that the other oligopolists in the market will not follow with price increases of their own.
What are the basic assumptions of kinked demand curve model?
The basic assumption underlying the kinked demand curve is that rivals will not follow an attempted increase in price by one of the firms but will follow a decrease. The result is that for each firm the portion of the demand curve above the current price is elastic and the portion below the curve is inelastic.
How do you find a kinked point?
To find the kink points, first notice that the y-intercept will be P = 0, the lowest intercept of the individual supply curves. The first kink point, is at P = 2, the next smallest intercept of the individual supply curves. The next kink point is at P = 3, the last intercept.
What are the negative effects of large oligopolists do not advertise?
What are the negative effects if large oligopolists do not advertise? Customers might purchase less efficient products that cost more. Consumers would be unaware of important new products. You just studied 45 terms!
Are oligopolies good for the consumer?
There are several advantages of oligopolistic market for consumers. Firms in order to compete the market share in this highly competitive oligopolistic industry. They may use price competition and non-price competition. Price competition can use discounting the price of productions to increase the market share.
