Potential competition is an economic force not yet shaping competition in a given market, but which has the potential to do so in the foreseeable future. It has recently moved up the competition policy enforcement agenda due to the growing interest in innovation-related theories of competitive harm and the rapid development of digital technologies and services. In this article, we briefly review, from an economic perspective, the current theories of harm relating to potential competition, the industries and market situations where such competition is relevant, as well as a few considerations regarding its assessment.
Competition authorities’ growing interest in innovation-related theories of harm, together with the rapid development of digital technologies and services, has intensified the attention paid by competition authorities to potential competition. While potential competition complements actual competition in restricting the market power of a dominant incumbent or of two merging companies, its assessment requires a somewhat different legal and economic toolbox than that of actual competition.
In this article, we briefly review what economics has to say about the relevance and assessment of the potential competition in various competitive settings. The article is structured as follows: First, we provide a definition of potential competition. Second, we explain the relevant economic theories of harm. Third, we discuss how potential competitors can be identified. Finally, we conclude with some thoughts on how to assess competitive pressure from potential competition.
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