Describe the essential features of the kinked-demand model of oligopoly pricing.

The kinked demand model has a demand curve with a flatter slope above the current price than below the current price. This applies to a noncollusive oligopoly firm if its rivals will match any price decrease but ignore any price increase. On the demand side, the kinked-demand curve gives each oligopolist reason to believe that any change in price will be for the worse. If it raises its price, many of its customers will leave. If it lowers its price, its sales will increase very modestly since rivals will match the lower price. On the cost side, the broken marginal-revenue curve suggests that even if an oligopolist's costs change substantially, the firm may have no reason to change its price.