Economic Issues in Assessing Potential and Nascent Competition

It is critical to understand the economic rationale that underpins the but-for world when evaluating potential or nascent competition in antitrust matters.

Potential and nascent competition have seen renewed interest from academics, antitrust practitioners, and U.S. enforcement agencies in recent years. For example, the Federal Trade Commission (FTC) focused on issues of potential competition during its Hearings on Competition and Consumer Protection in the 21st Century in 2018, as did the Organisation for Economic Co-operation and Development (OECD) during its 2020 Competition Meetings. The Antitrust Division of the U.S. Department of Justice (DOJ) and FTC’s recent request for information on merger enforcement included questions related to potential and nascent competition.

Importantly, both potential competition and nascent competition describe competition that does not currently exist. The DOJ and the FTC’s concerns about potential or nascent competition arise because firms’ strategies (e.g., pricing or investment decisions) are informed by their expectations about competition in the future. During the last 25 years, the FTC consistently challenged transactions and agreements over concerns related to the elimination of future competition.

Given the increased scrutiny on potential or nascent competition in antitrust matters, it is critical to understand the economic rationale that underpins the but-for world when evaluating such competition. In this article, authors Margaret Kyle of MINES ParisTech and Vivek Mani, Andrew Elzinga, and Nikhil Gupta of Cornerstone Research highlight some of these challenges, describe some illustrative examples, and discuss how these challenges may vary across different industries.

This article was originally published by Competition Policy International’s Antitrust Chronicle in February 2022.

The views expressed herein are solely those of the authors, who are responsible for the content, and do not necessarily represent the views of Cornerstone Research.