Potential Competition: Theory empirical evidence and legal practice

Even a monopolist will be restrained by the mere fact that there exists a potential entrant. These theories, however, build on some rather restrictive assumptions. Most importantly, there must be low entry barriers, no sunk costs, and consumers must not be "locked in" with their present supplier. Because these assumptions rarely hold in practice, most theoretical, as well as empirical, studies conclude that potential competition is less effective than actual competition in restraining dominant firms. In the present report, Associate Professor Mats Bergman of ECON has surveyed the existing knowledge of the effects of potential competition, on behalf of The Swedish Competition Authority.