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The Kinked Demand Model and the Stability of CooperationMarco A. MariniSapienza Università di Roma ; CREI, University Rome III Sergio CurrariniUniversity of Leicester - Department of Economics; Ca Foscari University of Venice - Department of Economics; Euro Mediterranean Centre for Climate Change (CMCC); Fondazione Eni Enrico Mattei (FEEM), Milan July 1, 2009 WP-EMS # 2009/05 Abstract: This paper revisits a particular behaviour for firms competing in imperfect competitive markets, underlying the well known model of kinked demand curve. We show that under some symmetry and regularity conditions, this asymmetric behaviour of firms sustains monopoly pricing, and possesses therefore some "rationality" interpretation. We also show that such a behaviour can be generalized and interpreted as a norm of behaviour that sustains efficient outcomes in a more general class of symmetric games.
Number of Pages in PDF File: 12 Keywords: kinked demand, symmetric games, norms of behaviour JEL Classification: C70, D21, D43, L13 working papers seriesDate posted: September 24, 2009Suggested CitationContact Information
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