Potential Competition

“Potential competition” refers to the effects of sources of competition that have not yet emerged as actual competitors. These could be firms that produce different products in the same geographic area, or those that sell the same product but in a different geographic area. It could also refer to the potential of sellers that do not yet even exist, but who might emerge if conditions become favorable. The most recent potential competition focus concerns merger law. Historically, however, the concerns were much broader, covering not only the Sherman Act but also reaching such fundamental issues as whether antitrust is necessary at all, given that potential competition is always present to discipline competitive abuses. The Clayton Act largely adopted economist John Bates Clark’s intermediate proposal that potential competition is a powerful force, but one that could be manipulated so as to make it ineffective.After briefly discussing the varieties of the potential competition problem in antitrust analysis, this essay turns to merger law, particularly to the 2023 draft Merger Guidelines effort to revive merger law’s potential competition doctrines. The ultimate question is whether and how potential competition merger concerns should be expanded. More particularly, what is the place of the doctrines of “perceived” and “actual” potential entry that the Supreme Court considered in the 1960s and 1970s but then abandoned? The case for a perceived potential entrant doctrine is much stronger than for an actual potential entrant doctrine. In addition, should “entrenchment,” another merger harm revived in the 2023 draft Guidelines, be recognized and if so how?Further, what is the effect of heavily revised conceptions of market definition since the 1960s. For example, variations of the “hypothetical monopolist” test (HMT) applied today consider not only who is currently making sales in a market, but also who could be making them in response to a small but significant and nontransitory increase in price? That suggests the interesting question who would not be in the market under the HMT but still should be counted as a potential competitor for purposes of evaluating a merger? That is, to a significant extent the HMT may displace potential competition doctrine