Potential competition

Potential competition in the European Union Law

Concept of Potential competition provided by the “Glossary of terms used in EU competition policy” (Antitrust and control of concentrations, published in 2002): Pressure exercised upon incumbent firms by the possibility that new or existing firms will enter a specific market ( Potential competitor).

New entrants may be attracted by above-normal profits made in this market by incumbent firms, possibly as a result of weak competition. Additional firms entering the market will increase the overall quantity supplied with the effect that prices fall and above-normal profits disappear. Thus, the possibility of market entry has a certain 'discipli-nary effect' on the behaviour of incumbents. However, the threat of potential competition is relatively small when () entry barriers are high.