Trigger-point mechanism and conditional commitment: Implications for entry, collusion, and welfare

Larry D. Qiu, Leonard K. Cheng, King Fai Fung

Research output: Journal article publicationJournal articleAcademic researchpeer-review


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).
Original languageEnglish
Pages (from-to)156-169
Number of pages14
JournalContemporary Economic Policy
Issue number2
Publication statusPublished - 1 Apr 2007

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Public Administration

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