The kinked demand curve model explains why prices in an oligopolistic market (a market with few large sellers) are often sticky, meaning they stay the same even when costs change.

This model creates a discontinuous marginal revenue (MR) curve, which consists of three parts:

• A higher MR segment linked to the elastic part of the demand curve.
• A lower MR segment linked to the inelastic part of the demand curve.
• A vertical gap or break that connects these two segments at the kink point.

Because of this vertical gap, companies do not need to change their price or output even if their marginal cost (MC) fluctuates slightly. As long as the MC stays within this gap, the company’s best strategy remains the same.

This is why companies in these markets often avoid price competition and focus instead on non-price competition, such as advertising or product design, to gain an advantage.