Title

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

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

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Full-text Version

Publisher’s Version

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