AP MicroeconomicsMarket Structures
Kinked Demand Curve
The kinked demand curve is an oligopoly model where rivals match price cuts but ignore price hikes, creating a kink at the current price and sticky (rigid) prices.
Each firm assumes that if it raises its price, competitors will not follow, so it loses many customers (demand is elastic above the kink); but if it cuts price, rivals match to protect their share, so it gains few customers (demand is inelastic below the kink). This kink produces a vertical gap in the marginal revenue curve, meaning marginal cost can shift within that gap without changing the profit-maximizing price or quantity—explaining why oligopoly prices tend to be rigid. The model describes price stickiness but does not explain how the original price is set.