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Kinked-Demand Theory definitions

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  • Oligopoly
    Market structure with few firms whose decisions are interdependent, leading to unique pricing and output behaviors.
  • Kinked Demand Curve
    Graphical representation with a distinct bend, reflecting different slopes based on competitors' price reactions.
  • Price Inflexibility
    Characteristic where prices remain stable despite cost changes, due to strategic interactions among firms.
  • Marginal Revenue Curve
    Graph showing revenue from selling one more unit, shaped uniquely in kinked-demand models with two slopes.
  • Marginal Cost Curve
    Graph depicting the cost of producing an additional unit, interacting with marginal revenue to determine output.
  • Competitive Advantage
    Benefit gained when a firm’s price is lower than rivals, attracting more customers and increasing sales.
  • Industry Quantity
    Total number of goods sold by all firms in a market, affected by collective pricing decisions.
  • Steep Demand Curve
    Section of the demand graph where quantity changes minimally in response to price shifts, often when rivals match prices.
  • Shallow Demand Curve
    Section of the demand graph where quantity changes significantly with price shifts, typically when rivals ignore price changes.
  • Price Matching
    Strategy where firms adjust their prices to align with competitors, reducing individual advantage.
  • Price Ignoring
    Situation where competitors do not follow a firm’s price change, leading to shifts in market share.
  • Equilibrium
    Stable point in the market where price and quantity remain unchanged due to mutual firm responses.
  • Game Theory
    Analytical framework for predicting firm behavior based on possible actions and reactions of rivals.
  • Elasticity
    Measure of how much quantity demanded responds to price changes, varying across sections of the kinked curve.
  • Profit Maximization
    Goal of firms to achieve the highest possible profit, complicated by interdependent pricing in oligopolies.