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Can prices be insensitive to unit cost variations? A game-theoretic alternative to the kinked demand curve explanation

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  • Stamatopoulos, Giorgos
  • Vlassis, Minas

Abstract

We provide a game-theoretic alternative of the kinked demand curve explanation of rigid prices. We analyze a duopoly where firms choose quantities and objectives. We identify cases under which firms choose to maximize their revenue. Under these cases, prices are insensitive to unit costs.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 116 (2012)
Issue (Month): 1 ()
Pages: 89-91

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Handle: RePEc:eee:ecolet:v:116:y:2012:i:1:p:89-91

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Kinked demand curve; Revenue maximization; Profit maximization;

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  1. Maskin, Eric & Tirole, Jean, 1988. "A Theory of Dynamic Oligopoly, II: Price Competition, Kinked Demand Curves, and Edgeworth Cycles," Econometrica, Econometric Society, Econometric Society, vol. 56(3), pages 571-99, May.
  2. Julio Rotemberg & Garth Saloner, 1986. "The Relative Rigidity of Monopoly Pricing," Working papers 414, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Sen, Debapriya, 2004. "The kinked demand curve revisited," Economics Letters, Elsevier, Elsevier, vol. 84(1), pages 99-105, July.
  4. Bhaskar, V., 1988. "The kinked demand curve: A game-theoretic approach," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 6(3), pages 373-384.
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