In oligopoly theory, a kinked demand curve shows a firm's demand when rivals match price cuts but ignore price increases.
The model was developed to explain why prices may remain stable in markets dominated by a small number of interdependent firms. If one firm raises its price, rivals may leave their prices unchanged, causing the firm to lose many customers. If it cuts price, rivals may follow, so the firm gains relatively few customers.
These different responses create a bend, or kink, at the prevailing price. The corresponding marginal-revenue curve has a discontinuity. If a firm's marginal cost changes within that gap, its profit-maximizing price and output may remain unchanged.
The kinked-demand model is a theoretical explanation rather than a universal law of oligopoly pricing. It does not by itself explain how the original price was chosen, and economists use other models—such as Cournot, Bertrand, and collusion models—to study different competitive conditions.