Barriers to Entry

• Pages: 163-183

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CHAPTER VII

BARRIERS TO ENTRY

A. Introduction

The economic concept of entry barriers plays a critical role in

determining whether market power exists. Both the courts 1 and the

1. For consideration of barriers to entry in merger cases, see, for example,

Chicago Bridge & Iron Co. v. FTC,534 F.3d 410, 427-29 (5th Cir. 2008)

(finding high barriers to entry and upholding Commission decision that

merger violated Clayton Act Action 7 and FTC Act Section 5); FTC v.

H.J. Heinz Co., 246 F.3d 708, 717 (D.C. Cir. 2001) (finding high barriers

to market entry would enhance anticompetitive effects of a merger in

baby food market in which there were no significant new entries in

decades); United States v. Baker Hughes Inc., 908 F.2d 981, 988-89 (D.C.

Cir. 1990) (upholding merger of firms after finding that “entry . . . would

likely avert anticompetitive effects”); United States v. Syufy Enters., 903

F.2d 659, 664-65 (9th Cir. 1990) (upholding lower court’s finding that

entry into movie market was easy and lack of entry barriers undermined

claim of market power); Cal. v. Am. Stores Co., 872 F.2d 837, 842 (9th

Cir. 1989) (“An absence of entry barriers into a market constrains

anticompetitive conduct, irrespective of the market’s degree of

concentration.”), rev’d on other grounds, 495 U.S. 271 (1990); United

States v. Waste Mgmt., 743 F.2d 976, 981-83 (2d Cir. 1984) (holding

merger creating firm with 48.8 percent market share would not likely

result in anticompetitive effects due to easy entry); FTC v. CCC Holdings,

Inc., 605 F. Supp. 2d 26, 47-60 (D.D.C. 2009) (finding evidence of new

entry “too speculative to reply upon” and issuing FTC requested

injunction blocking merger); United States v. Country Lake Foods, 754

F. Supp. 669, 675, 679 (D. Minn. 1990) (finding lack of entry barriers for

distant dairies to enter fluid milk processing market, which would prevent

existing competitors from exerting market power); United States v.

Calmar Inc., 612 F. Supp. 1298, 1306-07 (D.N.J. 1985) (finding ease of

entry would prevent postmerger exercise of market power despite fact

that merger would result in leading firm with over 75 percent of two

markets and HHIs over 6400); Op. of the Commission, Polypore Int’l, No.

9327 (F.T.C. Dec. 13, 2010), slip op. at 33-35, available at

http://www.ftc.gov/os/adjpro/d9327/101213polyporeopinion.pdf; Echlin

Mfg. Co., 105 F.T.C. 410, 485-92 (1985) (finding absence of entry

164 Market Power Handbook

economic literature2 recognize that incumbent firms will be unable to

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barriers into the assembly and sale of carburetor kits eliminates

possibility of a substantial anticompetitive effect). For consideration of

barriers to entry in monopolization cases, see Nobody In Particular

Presents, Inc. v. Clear Channel Comm’ns, Inc., 311 F. Supp. 2d 1048,

1103-1105 (D. Colo. 2004) (finding sufficient evidence on summary

judgment to show dangerous probability of monopolization of live

concert market when evidence show ed a rapid increase in market share

from 45 percent to 50 percent over three years and the existence of

significant entry barriers in the form of the incumbent’s economies of

scale in rock radio); Concord Boat Corp. v. Brunswick Corp., 207 F.3d

1039, 1059 (8th Cir. 2000) (finding recent entry into boat motor market

undermined claim that firm, even monopoly firm, could charge

supracompetitive prices); Handicomp, Inc. v. U.S. Golf Ass’n, No. 99-

5372, 2000 WL 426245, at *4 (3d Cir. 2000) (finding no entry barriers

into market for databases providing information for handicapping golf

courses means that high market share did not prove monopoly power);

Ball Mem’l Hosp. v. Mut. Hosp. Ins., 784 F.2d 1325, 1335-36 (7th Cir.

1986) (finding easy entry matters even though defendant has high market

share); United States v. AT&T, 524 F. Supp. 1336, 1347-48 (D.D.C.

1981) (finding “persuasive showing” of monopoly power was made

through evidence of “barriers to entry, such as the creation of bottlenecks,

entrenched customer preferences, the regulatory process, large capital

requirements, access to technical information, and disparities in risk”)

(internal citations omitted).

2. There is broad acceptance in the economics literature of the notion that

markets will behave competitively if entry is easy. See, e.g., F.M.

SCHERER & DAVID ROSS, INDUSTRIAL MARKET STRUCTURE AND

ECONOMIC PERFORMANCE 18 (3d ed. 1990) (“[S]ellers have little or no

enduring power over price when entry barriers are nonexistent”). Entry is

also emphasized in the “contestable market” theory, which argues that

potential competition is as effective as actual competition in disciplining

prices when “hit and run” entry is feasible. See, e.g.,WILLIAM J. BAUMOL

ET AL., CONTESTABLE MARKETS AND THE THEORY OF INDUSTRY

STRUCTURE ch. 2 (1982). However, there has been substantial debate over

the circumstances in which the contestable market theory applies. See,

e.g., Midwestern Mach. Co. v. Northwest Airlines, 392 F.3d 265 (8th Cir.

2004) (Gibson, J. dissenting) (criticizing now “disproved” theory of

contestability and noting that theory allowed airline mergers under the

presumption that new carriers could easily enter new markets because

airplanes are highly mobile, ignoring the difficulty of relocating or

obtaining other essentials to airline operations). A number of scholars

have suggested that there are many circumstances in which potential