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Oligopoly Kinked Demand Curve - Coggle Diagram
Oligopoly Kinked Demand Curve
Characteristics
Top 5 firms which own more than 60% of the market share
Each firm supplies branded products.
New firms cannot easily enter the market
Outcome of decision taken by one firm is interdependent on the decision of the other firms
The demand curve is sloping downward
The price elasticity of demand depends on rivals reactions to change in price of one firm
Assumptions
Rivals assumed to not follow a price increase
Rivals assumed to match the price fall
Price increase/Price Decrease
Price Increase
When one firm decides to increase price ,other firms maintain stay rigid to their price
The decrease in demand is steep as consumers switch to other firms .
Nature of the demand is elastic.
Price Decrease
When one firm decreases price ,the other firms follow suit
Not much increase in demand.
Demand is inelastic.
Final Kinked Demand Curve
Marginal Revenue
Revenue generated from selling one additional product
Formula: Change in total revenue/Change in total Quantity Sold
Is calculated for businesses whose price go down as the output increases
(1st broom=15) ( 2nd broom =10) ( marginal revenue=25-15/1=10)
Marginal Revenue and Marginal Cost
To maximise profit, marginal revenue should be equal to marginal cost
Prices will be rigid or sticky even if there is change in marginal cost of supply
You draw a line from the point where the MR intersects MC to the demand curve to get a price where the profit gain is max
Non price competition
As prices cannot be changed to earn profit ,firms engage in non price competition
Branding and sales promotions
Innovation and Quality of service including after sales
Free upgrades and exclusive Loyalty
