2 It makes unrealistic assumptions regarding firms’ behaviour in terms of
following price increases. It will be seen in the next chapter that there may
be good reasons for following a price increase as well as following a decrease.
3 Empirical evidence does not generally support the model.14 As mentioned
above, in reality firms tend to follow price increases just as much as they
follow price reductions.
In spite of the above shortcomings the kinked demand curve model remains
a popular approach to analysing oligopolistic behavior. For one thing, it
suggests that firms are likely to co-operate on the monopoly price, and this
fact is easily observed in practice. We now need to turn our attention to such
co-operation.