Can prices be insensitive to unit cost variations? A game-theoretic alternative to the kinked demand curve explanation
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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- Rotemberg, Julio J & Saloner, Garth, 1987.
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