TY - JOUR
T1 - Trigger-point mechanism and conditional commitment : implications for entry, collusion, and welfare
AU - QIU, Larry D.
AU - CHENG, Leonard K.
AU - FUNG, Michael K.
N1 - Financial support by a grant from the Research Grant Councilof Hong Kong (HKUST6211/97H).
PY - 2007/4
Y1 - 2007/4
N2 - 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.
AB - 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.
UR - http://commons.ln.edu.hk/sw_master/1516
UR - http://www.scopus.com/inward/record.url?scp=34247866286&partnerID=8YFLogxK
U2 - 10.1111/j.1465-7287.2006.00028.x
DO - 10.1111/j.1465-7287.2006.00028.x
M3 - Journal Article (refereed)
VL - 25
SP - 156
EP - 169
JO - Contemporary Economic Policy
JF - Contemporary Economic Policy
SN - 1074-3529
IS - 2
ER -