Exploring how demand curves differ across imperfectly competitive market structures and what this means for pricing and firm behavior.
Unlike perfect competition, firms in imperfectly competitive markets face downward-sloping demand curves, giving them some control over price.
Faces the entire market demand curve since it's the only seller.
Faces a highly elastic downward-sloping demand due to many substitutes.
Faces a kinked demand curve due to rival firm reactions.
The kinked demand curve model explains why prices tend to be rigid (sticky) in oligopolistic markets, even when costs change.
Rivals won't follow the price increase. The firm loses many customers to competitors. Demand is elastic above the current price.
Rivals will match the price cut to avoid losing customers. The firm gains few new customers. Demand is inelastic below the current price.
Neither raising nor lowering price is attractive, so prices remain stable even when costs change moderately.
Key characteristics that define oligopolistic market behavior.
Oligopolistic prices tend to be "sticky" – they don't change frequently even when costs or demand change. The kinked demand curve explains why.
Rogers, Bell, and Telus dominate the Canadian wireless market as an oligopoly.
Prices tend to be similar across carriers and change infrequently, demonstrating price rigidity.
Firms compete through advertising, network coverage, and bundled services rather than price cuts.
The kinked demand curve explained:
"I'll raise my prices!"
Competitors: *don't follow* 😎
"Fine, I'll LOWER my prices!"
Competitors: *immediately match* 🏃♂️
"I can't win!" 😭
Canadian telecom companies:
"Our prices are totally independent!"
*All three announce identical price increases on the same day*
"What a coincidence!" 🙄
Mutual interdependence: When firms are basically frenemies!
Now explore monopoly in depth – how monopolists set prices, maximize profits, and how governments regulate them.