Kinked demand curve is seen in …………………….. market

• The kinked demand curve is a theory used to explain price rigidity (resistance to change) in oligopolistic markets. Here's why:
-Oligopoly: A market with a small number of large sellers offering similar or differentiated products.

• The kinked demand curve theory suggests that firms in an oligopoly face a demand curve with a kink (sharp bend) at the prevailing market price. This kink arises due to the following assumptions:
-Interdependence: Firms are highly aware of each other's actions and anticipate reactions.
-Price Increase: If a firm raises its price, other firms are likely to maintain their prices. This could lead to a significant loss of sales for the firm that raised the price, as customers switch to the unchanged options from competitors. (This explains the sharp downward slope after the kink)
-Price Decrease: If a firm lowers its price, other firms might also lower their prices to maintain market share. This could lead to a price war, potentially benefiting some consumers but reducing overall profits for the industry. (This explains the relatively flat slope before the kink)

📌 Other Options Explained:
-a) Monopolistic Competition: This market has many sellers offering differentiated products with some brand loyalty. Monopolistic competition is a market structure where many companies compete to sell similar but differentiated products.
-b) Perfect Competition: This market has many buyers and sellers, with homogeneous products (identical) and perfect information. Price is determined by market forces, and individual firms have little control over it.
-d) Monopoly: This market has only one seller. A monopoly doesn't face competition and sets its own price based on its demand curve, which wouldn't typically have a kink.