The Kinked Demand Model and the Stability of Cooperation
WP-EMS # 2009/05
12 Pages Posted: 24 Sep 2009
Date Written: July 1, 2009
This paper revisits a particular behaviour for firms competing in imperfect competitive markets, underlying the well known model of kinked demand curve. We show that under some symmetry and regularity conditions, this asymmetric behaviour of firms sustains monopoly pricing, and possesses therefore some "rationality" interpretation. We also show that such a behaviour can be generalized and interpreted as a norm of behaviour that sustains efficient outcomes in a more general class of symmetric games.
Keywords: kinked demand, symmetric games, norms of behaviour
JEL Classification: C70, D21, D43, L13
Suggested Citation: Suggested Citation