Winter 2022, February, Volume 1
Antitrust Chronicle™ - Economics of Potential Competition
Potential (as opposed to “actual”) competition is defined, essentially, as a competitive constraint on a given firm’s behavior that might “potentially” arise, but has not done so yet. Modern economic thinking places increasing importance on taking potential competition into account in assessing antitrust issues.
How is potential competition defined? For example, it might be most evident where the entrant poses a threat based on a particularly disruptive innovation, an innovative business model, or access to (or ownership of) specific intellectual property or physical infrastructure that others might lack. In addition, the fact that the potential entrant has infiltrated similar markets before might constitute such evidence. The relative specificity of its ability to clear a high entry hurdle might also be demonstrated if it has already entered while others either have failed, or have yet to try.