Paul M Sweezy’s Kinked demand curve model explains price rigidity under oligopoly. Explain how.

Paul M. Sweezy's kinked demand curve model provides a theoretical framework to explain the phenomenon of price rigidity in oligopolistic markets. In such markets, a few large firms dominate, and each firm must consider the reactions of its competitors when making decisions about pricing and output. The kinked demand curve theory highlights how these interdependencies lead to stable prices even in the face of cost fluctuations or changes in demand.

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### Understanding the Kinked Demand Curve

The kinked demand curve model assumes that an oligopolistic firm faces a demand curve that has a distinct "kink" at the prevailing market price. This kink arises due to the firm’s expectations about how competitors will respond to changes in its pricing:

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