A MORE GENERAL-THEORY OF KINKED DEMAND CURVE - THEORY AND EMPIRICAL-TEST

This article shows that the kinked demand curve hypothesis has so far been rejected on theoretically unacceptable grounds. We revive Efrymso n's more general theory of the kinked demand curve, which has benn ove rlooked by all empirical studies conducted thus far. The reformulated, more general, theory then is tested using the probit analysis and a d ata set that is free of most shortcomings associated with previous emp irical studies. The results of our study show, for the first time, emp irical support for the conventional or obtuse kinked demand curve but fail to provide evidence for the existence of a reflex kinked demand c urve.