A Further Test of the Structural Implications of the Kinked Oligopoly Demand Curve.

The objective of this thesis is to conduct an empirical test of the kinked oligopoly demand theory. The kinked demand theory has received a from economists since its introduction in 1939. The theory has received support from subjective opinion surveys among businessmen, but no previous empirical test has been able to show evidence of the kink. The theory describes a reasonably intuitive notion that oligopolistic market rivals will match price decreases, but not increases. The kink is simply a bend or elbow in the demand curve at the point where this stickness occurs. The bend in the curve also results in a discontinuity in the marginal revenue curve. This results in the implication that oligopoly prices will tend to be rigid in the face of moderate cost and demand changes. A second version of the kink describes a reflex kink which produces relatively flexible oligopoly prices when industries are operating at, or close to, peak capacity. Keywords Economies Economic analysis.