Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, September 23, 2009

The Kinked Demand Model and the Stability of Cooperation

Posted by D. Daniel Sokol

Sergio Currarini (Department of Economics,Faculty of Economics, Università degli Studi di Venezia "Ca' Foscari") and Marco Marini (Dipartimento di Economia e Metodi Quantitativi, Università di Urbino) analyze The Kinked Demand Model and the Stability of Cooperation.

ABSTRACT: This paper revisits a particular behaviour for rms 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 rms 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.

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