A Kinked Demand Curve

An airline in a cartel has agreed to sell 10,000 seats at $500. If it cuts its price to sell more, the other members match the cut at once, so it gains almost nothing: dropping the price all the way to $300 sells only 1,000 extra seats. That is the steep lower arm of the curve.

If instead it raises its price, nobody follows, and customers move to the rivals who stayed cheap. Raising the price by $50 costs it half its seats, from 10,000 down to 5,000. That is the gentle upper arm. With losses in both directions, no member has much reason to move away from the agreed price, which is how a cartel can hold together without a contract anyone could enforce. The sliders set the agreed price and how far the price falls if the firm tries to expand.