Strategic Non-Entry

Abstract

This paper brings out a simple idea and a straight policy recommendation. The idea is that a producer in a given geographic or product market A may prefer not to enter another geographic or product market B in order to acquire the monopoly power holder in B at a later date without being challenged by the antitrust/competition authority competent for B – to the harm of consumers in B.

We provide stylized facts for this non-entry plus later entry-by-acquisition behaviour and build a game-theoretical model supporting them. Our model extends the classic entry model highlighting the rationale for the observed behaviour.

The straight policy implication is that competition/antitrust authorities should pay more attention to proposed mergers where market power only changes hands. The possibility of blocking those mergers – if no efficiency gain compared to entry by building is shown – should be seriously considered, as a more dynamic setting like ours suggests.