A formalistic application of existing antitrust rules might look backward and say that these mergers do not change competition. The historical market share of the entrant in each case is zero, so the merger does not change market structure at all. The examples illustrate that such a formalistic approach can be very silly. The entrant has not yet entered, so the use of historical market shares as an indicator of their market importance is uninformative.

This analysis is not always pro-intervention. Consider this third case, which involves the merger of two existing competitors where an examination of the current market would lead to the view that the merger substantially lessens competition. Yet there is an unblocked potential entrant, such as one from overseas or one with a good new technology not yet widely in use. The new competition from the new entrant is uncertain. Just as loss of uncertain new competition in the future can be a loss of competition, uncertain new competition can mean that a current merger lessens competition by less than it appears.

Another issue that arises with entrants is potential merger efficiencies. While arguments from merging parties about efficiencies are often speculative, the particular circumstances of an entrant may make efficiencies arguments right. For example, a technology-based entrant may seek to use the distribution network of the existing firm, its merger partner. In principle, these can be real efficiencies. Similarly, the overseas firm may seek to use the distribution network of a domestic firm. Evaluating these efficiencies arguments carefully is hard work.

The two situations, entrant with new technology and overseas firm with overseas product, share features that make conventional merger analysis very difficult. First, the competition is in the future, prospective. If we look only at the existing market, or the existing domestic market we miss elements. That leaves competition policy with a real problem, which is how to gauge the competitive significance of potential future competitors. This is more difficult than actual competitors. Looking for a simple rule, such as never opposing mergers with potential competitors, or never counting potential competitors as constraining market power, does not seem an adequate solution. The increasing importance of technology based entrants in innovative industries and overseas entrants with innovative marketing strategies or business models means that the problem matters for competition policy practically.

The problem is not conceptual but factual. Conceptually, merger analysis is about competition in the future. Conceptually, there should be more interventionist merger policy when the important future competitor is part of the merger, and less interventionist merger policy when the important future competitor is not part. Thus the problem applies symmetrically to intervention – and to nonintervention. Future competition that actually will arise is competition, either way.

The factual problem is that potential entrants and nascent entrants make the past a poor indicator of the future, if by the past we mean market structure in the year before the merger. That does not mean that the merger analysis should be un-analytical or without factual foundation. There are a number of enquiries to undertake, depending on available information. Are market participants, whether competitors, suppliers, or customers, treating the potential entrant as real? What has been the role of similar entry in other times or in other places? These are all enquiries which can be pursued. They call for hard economic analysis, not for formalist application of rules. Changes in the economy