Price rigidity refers to the tendency for an oligopolistic price to remain constant and stable over a long period of time. The kinked demand curve is a device frequently used to explain oligopolistic price rigidity. The following factors account for oligopolistic price rigidity and the existence of the kinked demand curve.

Prices under oligopolistic competition tend to be stable because such a price may be fixed by cartel i.e through formed agreement among firms and so cannot change unless the cartel is broken.

Due to interdependence, oligopolistic firms find it difficult to predict the reactions of other firms. Thus, each firm prefers to maintain the existing price rather than risking uncertainty by changing prices hence price stability under oligopoly.

Firms may fear entry of new firms in the industry which may be attracted by the abnormal profits. So, firms will prefer to maintain stable prices even if they are low to prevent other firms from being attracted into the industry by high prices.

Firms under oligopoly may be contented with the existing profits and fear risking a price war which may lead to losses.

Worse more, individual firms may have experienced the uselessness of a price war. In such circumstances, firms are ready to maintain the new administered price over a long period to avoid previous experience of a price war.

The practice of non-price competition in oligopoly means that firms can increase their sales and profits through advertising, incentives, product differentiation etc rather than changing prices. The ruling price therefore remains rigid and stable for long.

Each of the firms has a substantial share of the market. Frequent change of prices given the nature of oligopoly market structure would disturb the individual firms, market shares.

Firms do not have specific demand curves which would help them to determine prices accurately. Hence they are ready to accept the stable price fixed at he point of the kink on the demand curve.

Price leadership. If the price is an administered one, say by the largest firm in the industry, other smaller firms will have no influence over it. Therefore, it will remain fixed for as long as the price leader ( large firm) feels so.

Firms may fear to attract government interference in the form of minimum and maximum price legislation.