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Kinked demand curve is related to which market structure
- a)Oligopoly
- b)Monopoly
- c)Monopsony
- d)Monopolistic competition.
Correct answer is option 'A'. Can you explain this answer?
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Kinked demand curve is related to which market structurea)Oligopolyb)M...
Kinked Demand Curve in Oligopoly Market Structure
The kinked demand curve is related to the market structure of oligopoly. In an oligopoly market, there are only a few large firms that dominate the industry. These firms have a significant market share and their actions can greatly impact the market.
Explanation
Kinked Demand Curve:
In an oligopoly market, firms face a kinked demand curve. The kinked demand curve theory suggests that rivals will match a price decrease but not a price increase. This results in a gap or kink in the demand curve at the current price level.
Reasons for Kinked Demand Curve:
- If one firm lowers its price, other firms will follow suit to prevent losing market share.
- If one firm raises its price, other firms may not follow suit to avoid losing customers.
Implications:
- Price rigidity: Prices tend to remain stable in an oligopoly market due to the kinked demand curve.
- Non-price competition: Firms may compete through advertising, product differentiation, or other non-price competition strategies.
- Uncertainty: The kinked demand curve model leads to uncertainty for firms as they cannot predict how rivals will react to their price changes.
Conclusion
In conclusion, the kinked demand curve is a key feature of the oligopoly market structure. It reflects the interdependence of firms in oligopoly markets and the complex dynamics that arise due to competition among a small number of dominant firms.
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Kinked demand curve is related to which market structurea)Oligopolyb)Monopolyc)Monopsonyd)Monopolistic competition.Correct answer is option 'A'. Can you explain this answer?
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