Potential Competition Mergers: Lessons from Outside the Box

The puzzle of potential competition mergers is not theoretical but empirical — verifying that the firm not in the market is a likely significant competitor and that very few others are.  It may help to look at potential competition in other antitrust contexts.  From collusion, “reverse payment” pharmaceutical cases work only because regulation and legislation identify a unique potential generic competitor.  From abuse of dominance, the U.S. Microsoft case suggests low requirements for establishing that Netscape was a potential competitor to Windows, but in practice the case became equivalent in evidence and outcome to one about excluding actual competitors in browsers.  We conclude by looking at the relevance of empirical methods for assessing competitive risk in mergers, shifting the burden of proof, adding objectives beside “consumer welfare,” and, perhaps most important, focusing on how U.S. merger law specifies illegality when competition “may,” not “will,” be substantially reduced.

By Tim Brennan[1]

In principle, potential competition mergers are not puzzling. Understanding how a merger between an ongoing firm and a supplier not yet in the market could reduce competition in the future is neither difficult nor requiring the latest advances in industrial organization theory or even Chicago School economics. Courts have recognized a potential competition doctrine going back to at least 1964.^[2]

The hard part about potential