Procompetitive and Anticompetitive Assistance to Entry: On Cures That Bring Their Own Diseases
31 March 2004
By Dr. Gary Dorman with New York University Economics Professor William Baumol
Concerns over potential monopoly power and predatory pricing are common among consumers and policy makers alike. However, while there is understandable sympathy for the small, underfinanced and inexperienced market entrant, removing barriers to entry for the entrant may simply result in a different set of anticompetitive circumstances. In this paper, NERA Senior Vice President and Global Antitrust and Competition Policy Practice Chair Dr. Gary Dorman and New York University Economics Professor William Baumol examine the consequences of proposals to provide special protection measures to market entrants.
Presented at the Spring Meeting of the Antitrust Law Section of the American Bar Association in March 2004, the paper questions whether the desire to ensure survival for market entrants may come at the expense of costs so severe that they effectively prevent incumbents from competing. Dr. Dorman and Professor Baumol consider such potential consequences in marginally profitable industries such as airlines. The authors argue that effective competition in a market requires the opportunity for both entrants and incumbents to compete vigorously. Protection of entrants by rules that prevent effective competition by the incumbents serves only to provide the appearance of competition while destroying the substance.
This paper was published by the American Bar Association and distributed to attendees at the 2004 Spring Meeting of the Section of Antitrust Law in Washington D.C.
