Non-collusive oligopoly [Independent pricing], and the kinked demand curve hypothesis Notes
Non-collusive oligopoly and the kinked demand curve Independent pricing [Non-collusive oligopoly] : Independent pricing refers to independent action of each seller within an oligopoly industry. When different firms produce differentiated product, each firm follows an independent pricing policy. Every firm may estimate the reaction and calculation of its rivals and then fix its own price and output. Cournot’s duopoly model, Bertrand’s duopoly model, Edgeworth’s duopoly model, Chamberlin’s duopoly model and Sweezy’s kinked demand curve analysis explain non- collusive oligopoly. Independent action of sellers often leads to price wars when a price cut by one seller leads to retaliatory price cutting by other sellers. Independent action may also lead to stability in the long run when the firms become mature and learn by experience and try to avoid price wars unnecessarily. This leads to price stability or price rigidity in the oligopolistic market Price War : Price war may start when o...