Are We Dropping the Crystal Ball? Understanding Nascent & Potential Competition in Antitrust


We root for the underdog, and nascent and potential competitors are the antitrust version of underdogs. They introduce a promising product and innovation with the hopes of challenging the incumbent for supremacy in a market. Yet, are those hopes cancelled before they even begin with powerful incumbents acquiring these nascent and potential competitors? Some even refer to these acquisitions as “killer.” However, is this the full story? Assessments of nascent and potential competition are ultimately about “what if.” What if the upstart competitor grows into the next dominant platform or develops the next blockbuster drug? What if the incumbent knows its market position has a weakness that the entrant will exploit so the incumbent must end the competition before it even begins? On the other hand, what if the nascent competitor never fully develops its potential and engages in a series of missteps? What if the nascent competitor’s innovation can be improved upon and reach the market faster and more widely through the well-oiled machinery of the incumbent? These are all possible scenarios. The problem is that the counterfactual world is never actually observable. Thus, speculative “what ifs” cannot guide antitrust policy—whether in an overly permissive or aggressive manner. What are we left with? What should agencies and courts do in face of such uncertainty? This Article offers a number of propositions to address these concerns and questions in regard to competition that has not been fully realized. First, the Article offers a clear legal and analytical delineation between the doctrines of nascent and potential competition—as there has recently been a degree of “semantic satiation” between these two concepts. Second, some have argued that the acquisition of nascent competitors should be adjudicated using legal standards developed under the Sherman Act, Section 2, which covers monopolization, rather than under the traditional Clayton Act, Section 7, which governs mergers and acquisitions. Yet, the counterfactual exercise is fundamentally different between ex ante merger evaluations (Section 7) and ex post monopolization claims (Section 2). Consequently, based on this fact alone, courts should be cautious to adopt Section 2 approaches to Section 7 issues. Third, when evaluating the wider set of proposals to address the nascent and potential competition problem, which the Article comments on, we must ask whether there is a problem in the first place. To that end, the Article examines a number of recent merger retrospectives. Finally, while using the past to predict the future can be a difficult and uncertain exercise even within mature markets, these hinderances can be overstated. Economic tools are available to frame our approach, and agencies and courts should focus particularly on whether the characteristics and nature of the acquired nascent competitor are sufficiently differentiated from the remaining competitors to warrant increased scrutiny.