When one automaker begins offering low cost financing or rebates, othe

When one automaker begins offering low cost financing or rebates, others tend to do the same. What two oligopoly models might offer an explanation of this behavior?

What will be an ideal response?

ANSWER

(1 ) Kinked demand curve: the assumption behind the kinked demand curve model is that rivals follow price decreases but not price increases. One automaker offering rebates, etc., is essentially a price cut, and so others will follow. (2 ) Price leadership: This could also be viewed as a price leader setting a new price and others following.