Ryanair, Aer Lingus and Barriers to Entry: Is the Merger the Problem or Just the Entities Involved? a Detailed Analysis from and Economic Perspective
The purpose of this essay is not to determine whether or not, were the merger to go ahead, would it significantly lower competition (slc), as without new players entering the game this is somewhat inevitable. Our concern is whether any entrant that has the capacity to counterbalance this reduced competition in the market is significantly deterred from entering due to the existance of barriers. In determining this it must be proven that entry is not only possible but likely (European Union, 2004). One must not get too bogged down in proving that entrants can enter a market as this information is rather trivial. Competition policy must comprehend the perspective of the potential entrant in which case it does not matter if they could enter, but whether or not they would. The likelihood of entry is based on profitability in a post-merger scenario (Masey, 2008). In turn the profitability of entering the market is determined by a number of factors including barriers to entry which are relevant to this case, not because they enable incumbents to make excess profits but because they reduce entrant profitability.
Once proven likely the entity must prove that an entrant would be able to enter the market in a timely fashion in order to pose a genine threat to the incumbent firm (European Union, 2004). If there is too great a time lag the merged entity may benefit from anti-competitive behaviour (such as setting prices above a competitive level) for long enough to create a lasting negative effect before the competitor enters the market. As long as the returns on engaging in such activity are high enough to cover any switching costs and opportunity costs forgone, the trade-off faced by the incumbent favors anti-competitive behaviour, if even only in the short-run, and the threat of potential entry will not have the required restraining affect. This point is reiterrated by McAfee et al. in their paper entitled ‘When are Sunk Costs Barriers to Entry?’, saying, ‘Entrants might
Once proven likely the entity must prove that an entrant would be able to enter the market in a timely fashion in order to pose a genine threat to the incumbent firm (European Union, 2004). If there is too great a time lag the merged entity may benefit from anti-competitive behaviour (such as setting prices above a competitive level) for long enough to create a lasting negative effect before the competitor enters the market. As long as the returns on engaging in such activity are high enough to cover any switching costs and opportunity costs forgone, the trade-off faced by the incumbent favors anti-competitive behaviour, if even only in the short-run, and the threat of potential entry will not have the required restraining affect. This point is reiterrated by McAfee et al. in their paper entitled ‘When are Sunk Costs Barriers to Entry?’, saying, ‘Entrants might
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