What to explore
Change parameters and watch the model adjust.
- Prevailing price and output at the kink
- Demand slopes above and below the kink, and marginal cost
Intermediate oligopoly
Kinked Demand and Price Rigidity
An oligopolist faces demand that is elastic above the going price and inelastic below it, because rivals match price cuts but not price rises. The kink makes marginal revenue jump, so a range of marginal costs all leave price unchanged.
Focus
The kinked demand curve, the discontinuous marginal-revenue gap, and price rigidity
See why oligopoly prices are sticky: the kink in demand opens a gap in marginal revenue, and any marginal cost inside the gap leaves price and output at the kink.Interactive diagram
Kinked Demand — explore it instantly
How to read this
In an oligopoly each firm guesses how rivals react. If it raises its price, rivals hold theirs and it loses many customers — demand above the going price is elastic (flat). If it cuts its price, rivals match to defend share, so it gains few extra sales — demand below is inelastic (steep). Demand therefore kinks at the prevailing price.
Because the two demand segments have different slopes, their marginal-revenue curves don't meet: marginal revenue jumps down at the kink quantity, leaving a vertical gap. Whenever marginal cost passes through that gap, the profit-maximising output stays at the kink — so the firm leaves its price unchanged even as costs move. That is price rigidity.
Drag marginal cost up and down: inside the gap nothing happens, but push it out of the gap and the firm finally re-optimises — cutting output and raising price (cost above the gap) or expanding output and lowering price (cost below it).
Core ideas
Interpret the mechanics before you chase the graphs.
- Rivals match price cuts but ignore price rises, so demand is elastic above the kink and inelastic below it.
- Different demand slopes give the two segments different marginal-revenue lines, leaving a vertical gap at the kink quantity.
- Any marginal cost passing through the gap leaves the profit-maximising price and output unchanged — price rigidity.
Learning goals
What this model should help students internalize.
- Explain why an oligopolist's demand curve kinks at the prevailing price.
- Derive the discontinuous gap in marginal revenue from the two demand slopes.
- Show how marginal cost can change within the gap without changing price or output.
Prerequisites
Concepts to review before diving in.
- Linear demand and marginal-revenue intuition
- Profit maximisation where marginal revenue equals marginal cost
Next models to study
Keep moving through the track.
Intermediate firm theory
Monopoly and Deadweight Loss
Compare a monopolist's price and output to the competitive benchmark, and read off profit and deadweight loss as you reshape demand and cost.
Advanced microeconomics
2x2 Normal-Form Game
Change payoffs to see how best-response maps, equilibrium outcomes, and strategic tension shift across familiar 2x2 games.
Intermediate firm theory
Monopsony and the Minimum Wage
See how a monopsonist marks the wage down below the marginal product, and how a minimum wage between the monopsony and competitive wage raises both employment and pay.