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EUROPEAN COMMISSION DG Competition - page 18 / 113





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38. Barriers to expansion and entry are factors that make entry impossible or unprofitable while permitting established undertakings to charge prices above the competitive level. Undertakings expand output and enter markets to earn profits. Whether expansion or entry is profitable depends in particular on the cost of (efficient) expansion or entry and the likely prices post expansion or entry. The higher the cost of expansion or entry and the lower the likely post expansion or entry prices, the greater the risk that expansion or entry will be unprofitable and therefore not attempted.

Prices after expansion or entry 39. The prices post expansion or entry depend firstly on the impact on prices of the additional output put on the market by the expansion or by the new entrant, but also on the

reaction of incumbents, in particular the allegedly dominant undertaking. Likely strategic

responses from the incumbents are therefore taken into account. An aggressive competitive response from incumbents would be particularly likely if they have committed to large excess capacity. The allegedly dominant undertakings may also have built a reputation of responding aggressively to expansion or entry. When assessing whether or not expansion or entry would be profitable, the likely evolution of the market should also be taken into account. Expansion or entry is more likely to be profitable in a market that is expected to experience high growth in the future relative to a market that is expected to decline or stagnate.

Identification of possible barriers to expansion and entry 40. When identifying possible barriers to expansion and entry it is important to focus on whether rivals can reasonably replicate circumstances that give advantages to the allegedly dominant undertaking. Barriers to expansion and entry can have a number of origins relating to the legal or economic environment that pertains on the relevant market:

Legal Barriers: The legislative framework covering the relevant market can be an important barrier. Such legislation may limit the number of market participants, for example by granting special or exclusive rights in the shape of concessions, licenses or intellectual property rights. Legislative measures that grant a single undertaking the exclusive right to perform a certain activity excludes rivals and may lead to such an

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