How does the kinked demand curve model explain the pricing behavior of firms in an oligopolistic market, particularly in terms of market power and barriers to entry?

The kinked demand curve model helps us understand how firms in an oligopoly set their prices and why they tend to stay stable. In this model, firms believe that if they raise their prices, competitors will not follow, leading to a loss of customers. However, if they lower their prices, other firms will quickly match the price cut, so they don't gain many new customers. This creates a "kink" in the demand curve, where the firm faces a more elastic demand for price increases and a less elastic demand for price decreases. For example, if a company sells soda and raises its price, customers might switch to a competitor's soda, but if it lowers its price, others will lower theirs too, showing how firms have some market power but also face barriers to changing prices without losing profits.