TRIGGER‐POINT MECHANISM AND CONDITIONAL COMMITMENT: IMPLICATIONS FOR ENTRY, COLLUSION, AND WELFARE

Larry Qiu, Leonard K. Cheng and Michael K. Fung

Contemporary Economic Policy, 2007, vol. 25, issue 2, 156-169

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

Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/j.1465-7287.2006.00028.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:coecpo:v:25:y:2007:i:2:p:156-169

Ordering information: This journal article can be ordered from
https://ordering.onl ... 5-7287&ref=1465-7287

Access Statistics for this article

Contemporary Economic Policy is currently edited by Brad R. Humphreys

More articles in Contemporary Economic Policy from Western Economic Association International Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().