Trigger-point mechanism and conditional commitment : implications for entry, collusion, and welfare
Document Type
Journal article
Source Publication
Contemporary Economic Policy
Publication Date
4-1-2007
Volume
25
Issue
2
First Page
156
Last Page
169
Publisher
Wiley-Blackwell Publishing, Inc.
Abstract
When fixed, sunk investment costs are high, firms may not have sufficient incentive to enter the market unless future entry is constrained. In this case, the government faces a dilemma between a full commitment and noncommitment of restricted future entry. A way out is to consider a commitment conditional on the realization of the uncertain parameters, such as the trigger-point mechanism (TPM) that sets conditions on current production level, excess capacity, and demand growth under which future entry will be allowed. This article shows that the TPM facilitates the incumbents’ collusion but may improve social welfare under certain circumstances.
DOI
10.1111/j.1465-7287.2006.00028.x
Print ISSN
10743529
E-ISSN
14657287
Publisher Statement
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Qiu, L. D., Cheng, L. K., & Fung, M. K. (2007). Trigger-point mechanism and conditional commitment: Implications for entry, collusion, and welfare. Contemporary economic policy, 25(2),156-169.doi: 10.1111/j.1465-7287.2006.00028.x