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Trigger‐Point Mechanism And Conditional Commitment: Implications For Entry, Collusion, And Welfare

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  • LARRY D. QIU
  • LEONARD K. CHENG
  • MICHAEL K. FUNG

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. (JEL L13, L43, L50, H10, H54)

Suggested Citation

  • Larry D. Qiu & Leonard K. Cheng & Michael K. Fung, 2007. "Trigger‐Point Mechanism And Conditional Commitment: Implications For Entry, Collusion, And Welfare," Contemporary Economic Policy, Western Economic Association International, vol. 25(2), pages 156-169, April.
    • Handle: RePEc:bla:coecpo:v:25:y:2007:i:2:p:156-169
    DOI: 10.1111/j.1465-7287.2006.00028.x
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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