Potential Competition and Antitrust Analysis: Monopoly Profits Exceed Duopoly Profits

Abstract

This short note prepared for an OECD meeting in June 2021 examines several antitrust issues involving analysis of potential competition. While the analysis is not new, it is still useful to collect them together in a unified fashion to show how they are related. In this regard, all the analysis and conclusions flow from the overarching (and obvious) points that exclusionary conduct and agreements that maintain monopoly power very often harm consumers, and that monopoly profits typically exceed the combined duopoly profits earned by the dominant firm and the entrant, if there is successful entry. While this is not inevitably the outcome, it is a useful working assumption for most market situations involving acquisitions, exclusion or agreements with potential or nascent competitors.

Keywords: mergers, vertical mergers, guidelines