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what are the critics levelled at sweezy’s kinkbed curve
The Sweezy model of oligopoly is based on two main assumptions: i) Rivals will not match price increase ii) Rivals will always match price decrease. The reasoning above leads to a demand curve for a firm that has a kink in it at the current price. This demand curve is also known as Sweezys kinked demand curve. But this model has several criticisms. Firstly this model has very limited empirical evidence. Secondly, another important drawback of this theory is that this theory does not answer how price is initially set and, hence, does not explain the price levels clearly. It only explains why price does not change in response to moderate shifts in cost. In response to large shifts in cost, Sweezys model assumes that price should change, but it does not provide…

any guidelines as how the new price level is to be set. Thirdly, the theory predicts that there will be no kink, i.e. the prices become more flexible, when the oligopolists collude. But this has been proved wrong by Stigler. Fourthly, the model describes only one reason behind the price rigidity. But in practice, there can be several other valid explanations for price rigidity like nationally advertised price, reluctance to disrupt customer relations and the idea that repeated price cuts can lead to price war.

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