Kinked Demand Curve
The KDC model comes from analyzing two separate demand curves that the oligopolist faces --- a flat D curve (more elastic) and a steep D curve (more inelastic), and using the relevant portion of each demand curve for potential price increases or decreases.
Consider the idea of "mutual interdependence" among rival firms A, B, and C. The idea behind this model is that when one of the competing firms (say, Firm A) raises its price, the other firms do NOT follow that action. Firms B and C intend to increase their own sales and market share by being the lower-priced competition.
Alternatively, if Firm A lowers its price, then that price decrease will be matched by the other rival firms also with the intent of increasing sales and market share.
[Note: Show the graph here.]
The "kinked" demand curve gets its name from the fact that for price increases, Firm A's relevant demand curve is "elastic" but for price decreases, the relevant demand curve is "inelastic". Since TR will fall in either case*, the model concludes that mutually interdependent firms are very likely to keep prices stable.
* Recall that when P rises and demand is elastic, TR will fall and also when P falls and demand is inelastic, TR will also fall.
