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; 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
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.
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
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

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