Potential Competition and the 2023 Merger Guidelines

The 2023 Merger Guidelines devote a section to mergers that eliminate potential competition. This is an important contribution because agency guidelines have not discussed the subject in detail for almost 50 years. The new Guidelines follow the traditional distinction that has been upheld in the courts between a merger’s effects on incumbent responses to perceived potential competition and the potential effects of actual entry. Antitrust enforcement should assess both possible aspects of potential competition in an integrated fashion because harm from a merger occurs not infrequently from the elimination of actual potential competition; and when the elimination of perceived potential competition has an effect, it often occurs along with and as a consequence of the elimination of actual potential competition. Economic studies suggest that the benefits of perceived potential competition are less than some courts have assumed and that the benefits of actual potential competition are greater. Rather than focusing solely on the probability of harm from the elimination of a potential entrant, antitrust enforcement should adopt a sliding scale that takes into account the magnitude of the benefits for consumers or suppliers if entry is successful. Mergers with potential and nascent competitors can be harmful even if the probability of actual entry absent the merger is small.