What causes the kinked demand curve in an oligopoly market?

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The firm expects rivals to follow an increase in production but ignore reductions in output.The firm assumes competitors will respond to price hikes but not to decreases in output.The firm anticipates that rivals will match price decreases but will not follow price increases.The firm believes that competitors will match price increases but not increases in production.

Explanation

The kinked demand curve arises because an oligopolist expects competitors to react to price cuts by lowering their prices as well, but not to raise their prices when the oligopolist increases them. This asymmetric response leads to the characteristic kink in the demand curve.