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The Kinked Demand Model and the Stability of Cooperation

Author

Listed:
  • Sergio Currarini

    (Department of Economics,Faculty of Economics, Università degli Studi di Venezia "Ca' Foscari")

  • Marco Marini

    (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino (Italy))

Abstract

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.

Suggested Citation

  • Sergio Currarini & Marco Marini, 2009. "The Kinked Demand Model and the Stability of Cooperation," Working Papers 0905, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2009.
    • Handle: RePEc:urb:wpaper:09_05
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    File URL: http://www.econ.uniurb.it/RePEc/urb/wpaper/WP_09_05.pdf
    File Function: First version, 2009
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    More about this item

    Keywords

    Kinked Demand; Symmetric Games; Norms of Behaviour.;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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