What is oligopoly explain kinked demand curve?
Answer: 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.
What is a non-collusive oligopoly?
Collusive oligopoly is a market situation wherein the firms cooperate with each other in determining price or output or both. A non-collusive oligopoly refers to a market situation where the firms compete with each other rather than cooperating.
How does the kinked demand curve theory explain the occurrence of non price competition in oligopoly markets?
The kinked demand curve helps economists illustrate interdependence in an oligopoly market. From the kinked demand curve, we can see that it is not rational to increase or decrease prices. To compete in such a market structure, firms must compete through non-price strategies in an attempt to increase market share.
When oligopolies operate like firms in perfect competition the firms produce at the point where the?
The firms will expand output and cut price as long as there are profits remaining. The long-run equilibrium will occur at the point where average cost equals demand. As a result, the oligopoly will earn zero economic profits due to “cutthroat competition,” as shown in the next figure.
How does the kinked demand curve explain price rigidity in oligopoly?
The kinked-demand curve model (also called Sweezy model) posits that price rigidity exists in an oligopoly because an oligopolistic firm faces a kinked demand curve, a demand curve in which the segment above the market price is relatively more elastic than the segment below it.
How do oligopolies cause market inefficiency?
Oligopolies Cause Significant Inefficiencies – to the Detriment of Consumers. Part of the reason some economists are hesitant to accept the market power explanation is the scarcity of data that allows them to gauge the intensity of competition between firms.
What are oligopoly markets?
Oligopoly markets are markets dominated by a small number of suppliers. They can be found in all countries and across a broad range of sectors. Some oligopoly markets are competitive, while others are significantly less so, or can at least appear that way.
What is kinked demand curve in oligopoly?
Sweezy uses kinked demand curve to describe price rigidity in oligopoly market structure. The kink in the demand curve stems from the asymmetric behavioural pattern of sellers. If a seller increases the price of his product, the rival sellers will not follow him so that the first seller loses a considerable amount of sales.
What is the non-collusive oligopoly model?
Non-collusive oligopoly model (Sweezy’s model) presented in the earlier section is based on the assumption that oligopoly firms act independently even though firms are interdependent in the market. A vigorous price competition may result in uncertainty. The question that arises now is: how do oligopoly firms remove uncertainty?
Why is the demand curve of an oligopolistic firm inelastic?
Thus the firm lowering the price will not be able to increase its demand much. This portion of its demand curve is relatively inelastic. On the other hand, if the oligopolistic firm increases its price, its rivals will not follow it and change their prices.
What is a non-conventional demand curve in economics?
The idea of using a non-conventional demand curve to represent non-collusive oligopoly (i.e., where sellers compete with their rivals) was best explained by Paul Sweezy in 1939. Sweezy uses kinked demand curve to describe price rigidity in oligopoly market structure.