INTRODUCTION

Entry barriers play an increasingly influential role in modern antitrust cases despite the fact that they are not mentioned in any of the statutes that govern jurisprudence in this important area of federal law. The primary thesis of this piece is that contemporary antitrust cases often gloss over any real analysis of the existence or absence of entry barriers and simply make passing references to this alleged factor to justify a particular result. In other words, barriers to entry are utilized more as a makeweight than as a truly reliable or persuasive element of substantive antitrust analysis. Usually, a consideration of entry barriers in a contemporary antitrust case will increase a plaintiff's burden and make it more difficult to prevail on a potentially meritorious federal antitrust claim.

In any case in which a plaintiff must prove market power under section 1 or 2 of the Sherman Act or section 7 of the Clayton act, a requirement that the plaintiff demonstrate significant entry barriers in a particular market may make it difficult, if not impossible, to establish the elements of a successful antitrust claim. Some might argue that this is precisely the result we should encourage in a free market economy and that interference by courts should be reserved for exceptional circumstances where the market cannot correct distortions or dislocations on its own. However, given the general recognition that antitrust laws should primarily be enforced to enhance consumer welfare, inappropriate or excessive reliance on entry barrier analysis could result in too much judicial restraint with consequent harm to consumers. By relying too much on economic theory and perhaps ignoring real unilateral or collective market power, courts could run the risk of allowing markets to remain less than optimally competitive. This would yield inefficient results evidenced by underproduction of desirable goods and services and the charging of supracompetitive prices.

In Part I, this Article discusses the different approaches to defining barriers to entry based upon the economic literature and various legal authorities. Part II covers the treatment of entry barriers as a factor in Supreme Court antitrust decisions. Part III addresses the guidelines and policies of antitrust enforcement agencies regarding barriers to entry. Part IV focuses on entry barriers in federal district and appellate court decisions to determine whether those tribunals are acting consistently with Supreme Court precedents or are making significant departures from controlling authority. Part V offers a critical analysis of the role of barriers to entry in modern antitrust cases and suggests alternatives to current legal methodologies.

I - DEFINING THE ENTRY BARRIER CONCEPT

Legal commentators often focus on two definitions of entry barriers derived from the economic literature. The first, attributable to the work of Joe S. Bain, defines a barrier to entry as any factor that permits firms already in a relevant market to earn higher than normal profits while simultaneously deterring others from entering and competing.[1] An alternative definition and much narrower approach is most often associated with the work of Stigler. He argues that the entry barrier concept should be limited to costs that a prospective market entrant must incur at the time or after the time of entry that existing market participants did not have to incur when they entered the relevant market.[2] Under the Bainian definition, whether firms currently in the market faced costs of entry similar to those incurred by a prospective entrant does not matter. If the potential entrant confronts a cost that deters entry, it qualifies as an entry barrier. In contrast, under the Stiglerian approach, costs faced by a new entrant are not considered an entry barrier unless they were not also incurred by existing firms. For example, economies of scale achieved by firms currently in a market may create an advantage and deter entry. Thus, that efficiency would constitute an entry barrier under the Bainian definition. However, because incumbent firms faced a similar obstacle when they first entered the market, the Stigler definition would not consider economies a qualifying entry barrier.[3]

The courts and the Federal Trade Commission have not always been consistent in choosing between the Bainian and Stiglerian approaches. Many courts do not even attempt to discuss which approach makes more sense in terms of contemporary antitrust policy. Further, even if courts could reach a consensus about which definition is more appropriate, the definitions themselves do little if anything to explain how the entry barrier concept could or should be introduced into legal analysis under the Sherman, Clayton or Federal Trade Commission Acts. Should we distinguish between "natural" and "artificial" barriers and, if so, how do we articulate that distinction? What evidentiary standards should courts apply to this issue? Should courts rely on experts or expect more traditional statistical and other types of proof? On whom should the proof of the existence or absence of entry barriers rest? These are questions that must be addressed. Further, how does entry barrier analysis fit into the specific tests the Supreme Court has articulated for determining particular antitrust violations under the various statutory sections?

An initial question that requires consideration is specifically what constitutes qualifying entry barriers under any general definition. The courts offer a number of different examples. One court determined that the main sources of entry barriers are: (1) legal license requirements; (2) control over an essential or superior resource; (3) entrenched buyer preferences for established brands or company reputations; and (4) capital market evaluations imposing higher capital costs on new entrants.[4] Another court identified trade secrets, patents, licenses, capital outlays required to start a new business, pricing elasticity, and difficulties buyers may have in changing suppliers as barriers to entry.[5] Another opinion lists patents and other intellectual property licenses, control of essential or superior resources, entrenched buyer preferences, high capital entry costs and economies of scale as "common entry barriers."[6] Brand loyalty alone might constitute a sufficient barrier to entry.[7] In addition, "[e]ntry barriers may be created by the defendant's conduct itself."[8] The Federal Trade Commission has noted that "[e]xpertise in the industry, a fair amount of capital, a positive reputation, and the need to have specialized equipment are all barriers to entry."[9]

The focus is on whether the alleged entry barriers have the ability to constrain firms not already in the market and prevent them from entry.[10] If there is no significant threat of entry, a single firm with a dominant market share, or a combination of firms with a significant percentage of the market, could restrict output and raise prices to the detriment of consumers. Alternatively, if the there is a real threat of entry by firms not currently in the market, or if existing firms could expand their output,[11] the threatened anticompetitive effect on the public is presumably avoided. Of course, this theory assumes that incumbent firms would be deterred from objectionable conduct if entry barriers are low.

II - THE SUPREME COURT AND ENTRY BARRIER ANALYSIS

Despite the fact that federal district and appellate courts now rely more frequently on entry barrier analysis to support their antitrust decisions, the Supreme Court has really never provided a comprehensive analysis of barriers to entry and their role in interpreting the Sherman, Clayton and Federal Trade Commission Acts. Rather, the Court has periodically referenced entry barriers in antitrust cases, resulting in a somewhat cryptic and uncertain message to lower courts, litigants and students of antitrust law.

In 1911, in United States v. American Tobacco Co.,[12] the Supreme Court determined that a combination of firms resulting in dominance in the cigarette and related tobacco product markets violated the Sherman Act. Chief Justice White's opinion noted that "the gradual absorption of control over all the elements essential to the successful manufacture of tobacco products, and placing such control in the hands of seemingly independent corporations, serv[ed] as perpetual barriers to entry of others into the tobacco trade."[13] This early reference to entry barriers suggested that they were created by anticompetitive conduct rather than some cost or condition faced by potential entrants.[14] In 1919, in United States v. United States Steel Corp.,[15] another merger case, the Court distinguished American Tobacco as a case resulting in market dominance where the combination put "control in the hands of seemingly independent corporations as barriers to the entry of others into the trade."[16] Again, the Court simply referred to entry barriers in passing and made no attempt to provide any general definition or to elaborate on how entry barrier analysis was to be factored into statutory interpretation. As in American Tobacco, the Court seemed to imply that barriers were the result of anticompetitive conduct. It was not clear whether the size of the merged firm could somehow create economies of scale that would serve as an entry barrier or whether a dominant firm's market share could create an in terrorem effect on potential entrants. Similarly, one cannot tell whether the Court was determining that, in a case like American Tobacco, the dominant firm controlled necessary sources of supply or other essential resources to prevent successful entry. In short, the Court left the entry barrier concept unclear.

During the last few decades, the Supreme Court has more frequently mentioned or discussed barriers to entry, but the opinions have still lacked sufficient clarity regarding their definition and proper role in antitrust analysis. In 1965, in FTC v. Consolidated Foods Corp.,[17] the Federal Trade Commission had determined that an acquisition of a manufacturer of dehydrated onion and garlic by a large, diversified company owning food processing plants as well as wholesale and retail food stores violated section 7 of the Clayton Act because it had the anticompetitive effect of promoting reciprocal buying to the exclusion of independent competitors. After the Court of Appeals reversed the FTC's decision, the Supreme Court reversed again and reinstated the administrative finding of an antitrust violation.[18] Justice Douglas specifically referred to the Commission's determination that "the two-firm oligopoly structure of the industry is strengthened and solidified and new entry by others is discouraged" by reciprocal buying.[19]

This suggested that the FTC viewed reciprocal buying, potentially anticompetitive conduct, as a barrier to entry. Justice Stewart concurred but noted that, despite the oligopolistic nature of the market, "there is no evidence to indicate that barriers to entry were particularly severe."[20] Nevertheless, Justice Stewart voted with the majority because he concluded that the FTC "could . . . have fairly concluded that the inhibitory effects of the reciprocity . . . marked [the] merger with illegality.[21] Neither the majority nor concurring opinion attempted to define entry barriers or to explain in any detail their role in antitrust analysis under section 7 of the Clayton Act.

The following year, in United States v. Von's Grocery Co.,[22] the Court determined that a merger between two retail grocery companies in Los Angeles violated section 7 of the Clayton Act.[23] In an opinion emphasizing the reduced total number of competitors in the grocery market, Justice Black concluded that the trend toward concentration violated section 7 of the Clayton Act.[24] Barriers to entry or the lack of such barriers apparently played no role in the analysis of the majority. In contrast, Justice Stewart's dissent focused extensively on the fact that entry barriers were low in the grocery market and that the record reflected "numerous highly successful instances of entry with modest initial investments."[25] Nevertheless, the Von's majority apparently ignored the reality of easy entry and invalidated the merger, creating confusion and doubt about the role of entry barrier analysis in antitrust merger jurisprudence.

In 1967, in FTC v. Proctor & Gamble Co.,[26] the Supreme Court again sided with the FTC and found that a merger between a large, diversified manufacturer of household products and the leading manufacturer of household liquid bleach violated section 7 of the Clayton Act. Although the Court of Appeals had reversed the initial determination of illegality by the Commission, the Supreme Court disagreed and explained that "[t]he anticompetitive effects with which this product extension merger is fraught can easily be seen: (1) the substitution of the powerful acquiring firm for the smaller, but already dominant, firm may substantially reduce the competitive structure of the industry by raising entry barriers and dissuading the smaller firms from aggressively competing; [and] (2) the acquisition eliminates the potential competition of the acquiring firm."[27] The Court concluded that because the "major competitive weapon in the successful marketing of bleach is advertising,"[28] the large acquiring firm could divert a large portion of its advertising budget "to meet the short-term threat of a new entrant."[29] The Court added that the acquirer could also use volume discounts to its advantage in advertising, thereby making a "new entrant . . . more reluctant" to compete.[30]

Once again, no attempt was made by the Court to offer any general definition of entry barriers or to explain their precise role in merger cases or antitrust analysis generally. If advertising can be an entry barrier, when is it one and when is it not? Is mere size in comparison to one's rivals an entry barrier, or was the Court implying that scale economies enjoyed by the acquiring firm constituted the barrier to new entry?

The following year, in Fortner Enterprises, Inc. v. United States Steel Corp.,[31] the Supreme Court addressed the entry barrier issue in the context of a tying claim. The plaintiff alleged that the defendant had used advantageous credit terms (the tying product) to coerce borrowers to accept prefabricated houses (the tied product) at artificially high prices.[32] Justice Black explained that ties can raise "barriers to entry in the market for the tied product . . . since, in order to sell to certain buyers, a new company not only must be able to manufacture the tied product but also have sufficient financial strength to offer credit comparable to that provided by larger competitors under tying arrangements."[33]

Although he dissented from the result in Fortner, Justice White contributed significantly to the entry barrier discussion by noting that tie-ins make entering the tied product market more difficult for new firms.[34] This difficulty for potential competitors results from their need to "match existing sellers of the tied product in price and quality" and to "offset the attraction of the tying product itself."[35] Justice White added that even if a potential competitor can achieve simultaneous entry into both the tying and tied product markets, "entry into both markets is significantly more expensive than simple entry into the tied market, and shifting buying habits in the tied product is considerably more cumbersome and less responsive to variations in competitive offers."[36]

In Fortner, the Supreme Court again discussed entry barriers without making any effort to offer a general definition or a suggestion as to their proper role in antitrust litigation. However, one can glean from the opinions the idea that anticompetitive conduct can create artificial barriers to entry that detract from competition on the merits for the tied product. Further, Fortner implies that increased costs to potential competitors and the attractiveness of a defendant's particular product may constitute barriers to entry.

In 1970, the uncertainty surrounding the role of entry barriers in antitrust analysis was underscored by the Supreme Court in United States v. Phillipsburg National Bank & Trust Co.[37] In an opinion reversing a district court decision that a bank merger did not violate section 7 of the Clayton Act, the majority mentioned regulatory barriers to entry in the commercial banking market and explained that the defendant banks had failed to demonstrate likelihood of post-merger entry.[38] This perfunctory treatment of the entry barrier question reveals little about the Court's general views about ease or difficulty of entry as a factor in antitrust decisionmaking.

In contrast, Justice Harlan, writing separately, took a different and more careful approach to the entry barrier issue. Discussing entry barriers in the context of market structure, Justice Harlan explained that market share percentages "alone tell nothing about the conditions of entry in a particular market."[39] He added that "[n]ew entry can, of course, quickly alleviate 'undue' concentration," and "the possibility of entry can act as a substantial check on the market power of existing competitors."[40] However, the opinion hastened to add that entry into the business of banking is "not simply governed by free market conditions . . . for it is also limited by regulatory laws."[41] Justice Harlan then took pains to explain that legislative changes and judicial decisions had perhaps made entry into the relevant banking market easier.[42] Thus, while agreeing with the majority's decision to remand, Justice Harlan wanted the district court to "re-evaluate ... in light of the entry conditions and existing competition" to determine whether "the merger can fairly be said to threaten a substantial loss of competition."[43]

Phillipsburg seems to suggest a larger role for entry barrier analysis, at least in merger cases under section 7 of the Clayton Act. However, note that the majority implied that ease of entry might make a difference if the defendants could demonstrate insubstantial barriers. On the other hand, Justice Harlan's opinion suggested that ease of entry might go to the heart of the government's case and undermine the importance of market share percentages in assessing the market power of the firms involved in the merger. One might infer from this that difficulty or ease of entry is an issue for the plaintiff to tackle rather than some sort of rebuttal argument for the defendant.

The absence of any comprehensive approach to entry barriers is also discernible from Ford Motor Co. v. United States,[44] a vertical merger case in which the second largest automobile manufacturer acquired an independent producer of spark plugs and other automotive parts. Affirming a district court decision finding that the merger violated section 7 of the Clayton Act, the Supreme Court endorsed two rationales for a determination of illegality; (1) Ford's possible alternative entry into the spark plug market by internal expansion posed a threat that disciplined existing competitors; and (2) Ford's acquisition "had the effect of raising barriers to entry" in the spark plug market by foreclosing independent manufacturers of plugs from selling to Ford.[45] The Court added that Ford could "maintain . . . virtually insurmountable barriers to entry to the aftermarket."[46] The Court reached this conclusion despite the fact that the merger would foreclose Ford from purchasing about ten percent of the total spark plug industry output.[47] As in earlier cases, the majority made no effort to generally define entry barriers or to explain clearly their precise function in section 7 analysis or antitrust jurisprudence generally. Presumably, the major problem in Ford was the threat that independent spark plug manufacturers would be prevented from selling to automakers relying on their own supplier garnered through vertical integration. Theoretically, this would require entry into both the automobile and spark plug markets in order to be profitable.

In 1973, entry issues were featured prominently in United States v. Falstaff Brewing Corp.,[48] a case involving a geographic market extension merger in the beer industry. The fourth largest beer producer in the country sought to acquire a New England beer manufacturer.[49] The Court reversed a district court's dismissal of the government's case and focused on the potential entry of defendant de novo or by a "toe-hold acquisition" (i.e. "acquisition and expansion of a smaller firm").[50] That is, the perceived threat of entry other than by the challenged merger can be a basis for a section 7 violation "because the entry eliminates a potential competitor exercising present influence on the market."[51]

The Court did not deal with the question of whether firms other than the defendant could similarly have entered the market. In other words, if the defendant did not face significant barriers to entry, couldn't other beer producers enter the geographic market if the market did not function competitively?[52] What barriers were faced by other potential competitors that the defendant did not face? If there were a trend towards more regional and national beer production, wouldn't that increase the likelihood of entry by other firms and not just the defendant?

The importance of governmental or regulatory barriers to entry was addressed in 1974 in United States v. Marine Bancorporation, Inc.,[53] a case involving a proposed banking merger in which the government unsuccessfully relied upon the potential competition doctrine.[54] The Supreme Court criticized the government's case for failing "to accord full weight to the extensive federal and state regulatory barriers to entry into commercial banking."[55] Contrasting the relative ease of entry in cases such as Falstaff, the Court recognized that entry into banking was a matter of governmental grace that included "federal and state supervisory controls over the number of bank charters to be granted, designed to limit the number of banks operating in any particular market and thus to prevent bank failures."[56] Given these barriers, there was a significantly decreased likelihood that the "acquiring bank is either a perceived potential de novo entrant or a source of future competitive benefits through de novo or foothold entry."[57] Thus, the entry barriers created by government regulation actually precluded any finding of illegality because the acquiring firm was less likely to enter the market in the absence of a merger.[58]

The result in Marine Bancorporation was dictated in significant part by the presence rather than the absence of entry barriers. Normally, one would expect the existence of barriers to entry to militate in favor of a finding of an antitrust violation because market concentration and the threat of unilateral or coordinated anticompetitive behavior would not be offset by any prospect of rapid entry or expansion. Nevertheless, the fact that the government relied on a potential competition theory in Marine Bancorporation doomed the case when entry barriers undermined the notion of any real threat of potential competition through an alternative means of market entry by the acquiring firm.

In 1977, in Bates v. State Bar of Arizona,[59] the Court was confronted with a Sherman Act and First Amendment challenge to restrictions on attorney advertising. Although the Court never reached the merits of the antitrust claim because of the state action doctrine,[60] it invalidated the constraints on advertising on free speech grounds.[61] In the context of the First Amendment discussion, Justice Blackmun discussed the alleged undesirable effect of attorney advertising and noted that "it is claimed that the additional cost of practice will create a substantial entry barrier, deterring or preventing young attorneys from penetrating the market and entrenching the position of the bar's established members."[62] Nevertheless, the Court labeled the argument "dubious" and suggested that advertising was more likely to enhance competition by allowing newer lawyers to develop contacts and generate business.[63]

Thus, contrary to the notion that advertising may increase rivals' costs and create a significant impediment to entry, the Supreme Court in Bates, at least with regard to competition for legal services, appeared to take a different view. The Court viewed the ability to advertise by newer competitors as a boon to the competitive process.

In 1979, the Supreme Court breathed new life into rule of reason analysis under section 1 of the Sherman Act when it decided Broadcast Music, Inc. v. Columbia Broadcasting System, Inc.[64] The majority held that a blanket licensing arrangement for copyrighted musical compositions should be judged under the rule of reason rather than a per se rule.[65] Justice Stevens, while agreeing that the blanket license should be subject to a test of reasonableness, nevertheless dissented because he believed that the restraint was in fact unreasonable.[66] In the course of his dissenting opinion, Justice Stevens focused on the price discrimination effected by the blanket license and explained that "[a]n arrangement that produces marketwide price discrimination and significant barriers to entry unreasonably restrains trade even if the discrimination and barriers to entry have only a limited life expectancy."[67] Thus, Justice Stevens suggested that even short-lived entry barriers could have a significant impact on competition.

In the context of its analysis of tying arrangements, the Court in 1984 addressed entry barriers in Jefferson Parish Hospital District No. 2 v. Hyde.[68] In Jefferson Parish, a hospital's exclusive arrangement with an anesthesiology firm was challenged as an illegal tie of anesthesiology services to surgical services. Although the Court determined that the defendants lacked sufficient market power in the tying product to force purchases of the tied product,[69] it did note that where market power existed in the tying product, competition in the market for the tied product could be impaired.[70] Purchasers of the tying product could be forced to buy an inferior or more expensive tied product or service from the seller of the tying product if they lacked alternative sources for the tying product or service. This anticompetitive effect "could either harm existing competitors or create barriers to entry of new competitors in the market for the tied product . . . and can increase the social costs of market power by facilitating price discrimination, thereby increasing monopoly profits over what they would be absent the tie."[71]

In 1986, in Matsushita Electric Industrial Co. v. Zenith Radio Corp.,[72] the Supreme Court was sharply divided regarding summary judgment in antitrust cases under section 1 of the Sherman Act. In a 5-4 decision, the majority determined that to survive a summary judgment motion, a plaintiff must present evidence that tends to exclude the possibility of independent rather than concerted action.[73] In the context of this discussion, the majority emphasized that a predatory pricing scheme cannot be effective in the absence of significant barriers to entry because easy entry would prevent maintenance of supracompetitive prices for any extended period of time.[74] In other words, without an ability to recoup any losses sustained during a period of coordinated below cost prices, the conspiracy makes no economic sense.[75]

The Matsushita decision is an indication of the Court's willingness to consider entry barriers in antitrust decisionmaking. However, note that the majority gives no indication of what it would consider a qualifying entry barrier. Also, the alleged lack of entry barriers in the electronics industry did not persuade the four dissenting justices.

More recently, a more extensive and sophisticated role for entry barriers may be gleaned from the Supreme Court's antitrust jurisprudence. In Cargill, Inc. v. Monfort of Colorado, Inc.,[76] the Court rejected a claim that a merger in the beef packing industry would create a plausible threat of post-merger predatory pricing. Justice Brennan concluded that the private plaintiff "neither raised nor proved any claim of predatory pricing before the District Court."[77]

Elaborating, the Court first noted that barriers to entry after competitors had been driven from the market must be considered to determine if post-acquisition predatory pricing was economically viable.[78] The Court explained that without entry barriers, a predation scheme would fail because there would be no opportunity to recoup losses resulting from below cost prices. Any effort to raise prices to supracompetitive levels would be met by new entry that would drive prices back down to a normal, competitive standard.[79] Despite findings at the trial level that "significant barriers" existed due to the cost and delay of building new plants and the cost of refurbishing existing facilities, the Supreme Court explained that entry conditions subsequent to rather than prior to the merger should be considered.[80] Thus, the Court determined that even if pre-acquisition entry barriers did exist, the post-merger availability of bankrupted firms' plants and necessary labor might well indicate that entry would be both easy and profitable after a predatory pricing scheme had driven existing competitors from the market.[81]

In 1990, in Atlantic Richfield Co. v. USA Petroleum Co.,[82] Justice Brennan again wrote for a majority of the Court in rejecting a private antitrust claim challenging a vertical, maximum price fixing conspiracy. The Court noted, as it had in Cargill, that "ease of entry into the market" precluded any viable scheme of predatory pricing.[83] Justice Stevens again dissented and argued that independent competitors could be eliminated and that entry barriers might actually prove to be quite high.[84] He noted that plaintiff asserted that the "barriers to entry into this market have been high, and today such barriers are effectively insurmountable; once an independent is eliminated, it is highly unlikely that it will be replaced."[85]

In 1992, the Supreme Court briefly revisited the entry barrier issue in the context of tying arrangements. In Eastman Kodak Co. v. Image Technical Services, Inc.,[86] Justice Blackmun cited both Fortner and Jefferson Parish, two earlier tying cases, for the proposition that "one of the evils proscribed by the antitrust laws is the creation of entry barriers to potential competitors by requiring them to enter two markets simultaneously."[87] Thus, the Court declined to enter summary judgment in the context of a claim that defendant Kodak had illegally tied the sale of service for its copying and micrographic equipment to the sale of replacement parts for those machines.[88] This suggests that raising a competitor's costs could constitute a legally cognizable entry barrier.

In 1993, in Brooke Group, Ltd. v. Brown & Williamson Tobacco Corp.,[89] the Supreme Court suggested even greater importance for the entry barrier concept in antitrust jurisprudence. Brooke was a primary line price discrimination case brought pursuant to the Robinson-Patman Act. The plaintiff alleged that the defendant cigarette manufacturer had provided volume rebates to wholesalers that resulted in below average variable cost prices.[90]

The entry barrier issue was addressed in the context of the Court's determination that, absent a reasonable prospect of recouping any losses resulting from below cost pricing, there could be no harm to competition.[91] Justice Kennedy explained that "[t]he plaintiff must demonstrate that there is a likelihood that the predatory scheme alleged would cause a rise in prices above a competitive level that would be sufficient to compensate for the amounts expended on the predation, including the time value of the money invested in it."[92] One important factor that would detract from the probability of recoupment was the presence of a market where "entry is easy," because any attempt to charge higher prices after eliminating or deterring rivals would be met with lower priced competitive responses.[93] In the absence of any reasonable chance to recoup losses incurred as the result of a below cost pricing strategy, "consumer welfare is enhanced" by the windfall of lower prices that would not be offset by later supracompetitive prices.[94]

The implications of Brooke for general antitrust principles is far from clear. Arising in the context of a price discrimination claim, the entry barrier question is presented under circumstances where the challenged conduct is a boon to consumers unless it can be offset by later recoupment of sustained losses. The initial injury is only to competitors and not the process of competition. If there is no prospect of consumer injury down the road, antitrust principles are not offended. Thus, ease of entry will prevent any consumer injury at any point. In contrast, other antitrust offenses involve conduct where, at least in the short run, consumers may face restricted output and higher prices due to anticompetitive behavior. This may be a good reason to limit the scope of Brooke's impact on general antitrust law.

In sum, the Supreme Court has undoubtedly acknowledged the entry barrier concept and injected the terminology into its antitrust jurisprudence. What it has not done, however, is provide a clear definition barriers to entry or clearly explain precisely how the presence or absence of such barriers should affect determinations in the context of specific antitrust claims. For example, in a section 2 monopolization or attempted monopolization claim, are entry barriers relevant in determining the existence of sufficient market power? If so, does the plaintiff or defendant have the burden of coming forward or burden of proof on that issue? In a section 1 rule of reason analysis, once again, are entry barriers relevant to the question of market power and who should have the burden on the question? The same question arises in a merger challenge under section 7 of the Clayton Act.

The sketchy treatment of entry barriers by the various Supreme Court cases that touch upon these questions provides a startling lack of clarity. If entry barriers (or their absence) can be a potentially dispositive factor in antitrust analysis, shouldn't the Court elaborate on their role in a more comprehensive fashion? Theoretically, if barriers to entry do not exist, no antitrust violations for which market power is a critical component would be established. In fact, one could even question whether practices in the per se category, such as horizontal price-fixing, should remain automatically illegal if the absence of entry barriers dooms any anti-consumer conspiracy. If two competitors raise their prices pursuant to an agreement, the plot could only succeed if entry barriers are low. Otherwise, existing firms will expand output or other firms will enter the market to restore competitive price levels.[95] Thus, Supreme Court elaboration on the role of entry barriers in antitrust jurisprudence is essential.[96]

III - ENFORCMENT AGENCY GUIDELINES AND POLICIES

The most extensive discussion of the role of entry barrier analysis in antitrust cases may be gleaned from some of the published guidelines and enforcement policies of government agencies responsible for antitrust oversight and enforcement. Notably, the Horizontal Merger Guidelines jointly issued in 1992 by the U.S. Department of Justice and Federal Trade Commission[97] extensively discuss barriers to entry in the context of mergers between competitors. The Guidelines incorporate entry analysis both in the sections addressing market definition and the probable economic effects of a merger.

The Guidelines treat "uncommitted entrants"-firms not "currently producing or selling the relevant product in the relevant area-as participating in the relevant market if their inclusion would more accurately reflect probably supply responses."[98] These uncommitted entrants must make their supply side responses within one year and without the expenditure of "significant sunk costs of entry and exit."[99] Uncommitted supply responses may occur by switching or extending existing assets to compete in the relevant market, or they may involve the actual construction or acquisition of assets to compete.[100] By including these uncommitted entrants in the definition of the product and geographic markets, the anticompetitive potential of a particular merger is reduced because the market shares of the merger participants is lessened and their post-merger ability to harm consumers through higher prices and reduced output is more questionable.

A more detailed and extensive analysis of entry barriers and mergers is contained in sections 3.0-3.4 of the 1992 Guidelines. The Guidelines explain that "[a] merger is not likely to create or enhance market power or to facilitate its exercise, if entry into the market is so easy that market participants, after the merger, either collectively or unilaterally could not profitably maintain a price increase above premerger levels."[101] Entry is defined as "easy" if it would be "timely, likely and sufficient in its magnitude, character and scope to deter or counteract the competitive effects of concern."[102] Unlike considerations regarding entry of uncommitted firms, "committed entry . . . is defined as new competition that requires expenditure of significant sunk costs of entry and exit."[103] Firms treated as committed entrants must "achieve significant market impact within a timely period" at a sufficient level of profitability to make such entry worthwhile.[104] The Guidelines also require assessment of whether committed entry would "be sufficient to return market prices to their premerger levels."[105]

In determining the issues of timeliness, likelihood and sufficiency of entry, the Guidelines indicate that no attempt would be made to identify specific potential entrants.[106] Rather, the investigating agency will consider all phases of entry including planning, design, management, permitting, licensing, construction, debugging, operation of production facilities, promotion, marketing, distribution, customer testing and qualification requirements.[107] The Guidelines also specify that timely entry for committed entrants must occur within a maximum of two years from "initial planning to significant market impact."[108] Regarding likelihood of entry, the Guidelines explain that they view entry as "likely if it would be profitable at premerger prices and if such prices could be secured by the entrant."[109] With respect to sufficiency of entry, the Guidelines indicate that given the possibility that either multiple entrants or individual entrants will have flexibility choosing their scale, committed entry "generally will be sufficient to deter or counteract the competitive effects of concern whenever entry is likely."[110]

The 1984 Non-Horizontal Merger Guidelines also deal with entry barriers to some degree. In their general discussion of entry conditions, these guidelines explain that the Department of Justice is "unlikely to challenge a potential competition merger when new entry into the acquired firm's market can be accomplished by firms without any specific entry advantages under the conditions stated in Section 3.3 [of the Horizontal Merger Guidelines]."[111] A merger is more likely to be challenged "as the difficulty of entry increases above that threshold,"[112] and if the acquiring firm has an entry advantage significant enough that there are not at least three or more firms that also possess the same or comparable entry advantages.[113] If there are fewer than three similarly situated potential entrants, or if there is strong evidence of likely actual entry by the acquiring firm, there is a greater chance of a challenge to the merger.[114] Notwithstanding any of the foregoing, the Guidelines note that "[b]arriers to entry are unlikely to affect market performance if the structure of the market is otherwise not conducive to monopolization or collusion."[115]

The Non-Horizontal Guidelines also address entry barriers in the context of vertical mergers by explaining that vertical integration resulting from a buyer/seller merger "could create competitively objectionable barriers to entry."[116] In order for this to occur, three conditions are necessary (but not sufficient) to create an anticompetitive threat: (1) the degree of vertical integration must be so extensive that entrants would have to enter both the primary and secondary markets; (2) the requirement of two-level entry must make entry into the primary market where the competitive concerns exist more difficult and less likely; and (3) the structure and other characteristics of the primary market must be so conducive to non-competitive performance that heightened entry barriers would be likely to affect its performance.[117]

On April 7, 2000, the FTC and Department of Justice issued Antitrust Guidelines for Collaborations Among Competitors ("Competitor Collaboration Guidelines"). These guidelines define a "competitor collaboration" as a "set of one or more agreements, other than merger agreements, between or among competitors to engage in economic activity, and economic activity resulting therefrom."[118] Unlike horizontal mergers, competitor collaborations "preserve some form of competition among the participants" and are "more typically of limited duration."[119] Because consumer welfare may be enhanced by these cooperative efforts in the form of lower prices, better quality or the development of new products, the DOJ and FTC are willing to examine them with some care.[120] However, such collaborations carry the risk of increasing the ability of firms to profitably raise prices or reduce output, quality, service and innovation.[121] Thus, in many cases a balancing of procompetitive and anticompetitive effects is often necessary to determine the reasonableness or unreasonableness of a given collaborative effort.

In this context, the DOJ and FTC have deemed entry barriers, or the lack of them, as an important consideration in determining the likely effects of horizontal cooperation. Section 3.35 of the Guidelines explain that "[e]asy entry may deter or prevent maintaining price above, or output, quality, service or innovation below, what likely would prevail in the absence of the relevant agreement."[122] If a competitor collaboration raises concerns not mitigated by other factors, the enforcement agencies will "inquire whether entry would be timely, likely and sufficient in its magnitude, character and scope to deter or counteract the anticompetitive harm of concern."[123] In making this assessment, the DOJ and FTC will utilize the principles enunciated in section 3 of the Horizontal Merger Guidelines.[124]

However, the Competitor Collaboration Guidelines note that, unlike mergers, "competitor collaborations often restrict only certain business activities, while preserving competition among participants in other respects, and they may be designed to terminate after a limited duration."[125] This makes the determination of whether entry would be induced and the effect of such entry "more complex and less direct than for mergers."[126] For example, the shorter the duration of a particular competitor collaboration, the less likely it will create profitable opportunities for potential entrants and, thus, it is less likely that entry will occur.[127]

The Competitor Collaboration Guidelines extensively refer to relevant Supreme Court decisions to support the analytical framework they articulate.[128] In contrast, the Horizontal Merger Guidelines are devoid of any references to Supreme Court cases interpreting section 7 of the Clayton Act or section 1 of the Sherman Act. This raises a legitimate question about whether the FTC and DOJ enforcement policies are consistent with these statutes as construed by the Court. The relative paucity of Supreme Court pronouncements on the precise role of entry barriers in antitrust jurisprudence makes it unclear whether the Guidelines comport with judicial construction of the relevant statutes or depart significantly from precedent. Federal merger enforcement has shifted largely from a judicially enforced scheme to more of an administrative regime,[129] but private actions and government instituted court proceedings continue.

IV - FEDERAL APPELLATE AND DISTRICT COURT APPROACHES TO ENTRY BARRIERS

Uncertain Supreme Court precedent and much more specific enforcement agency pronouncements regarding the role of entry barriers in antitrust litigation have led the federal district and appellate tribunals to include entry barrier considerations in their decisionmaking. References to the presence or absence of such impediments to entry appear to have increased in recent years as courts attempt to incorporate more economic analysis into antitrust disputes. Therefore, understanding whether a court's approach to entry barriers furthers Congress' antitrust policy and the Supreme Court's interpretation of that policy is important.

Section 1 of the Sherman Act proscribes contracts, combinations and conspiracies in restraint of interstate trade. While some section 1 offenses fall within a per se category of illegality and require no showing of market power or actual anticompetitive effects within well-defined product and geographic markets,[130] many section 1 cases are decided pursuant to the rule of reason.[131] In a rule of reason analysis, plaintiffs must define the relevant markets and demonstrate that the defendants possess market power within such markets.[132] In so doing, consideration of entry barriers may increase the hurdles for antitrust plaintiffs to surmount. If firms not currently participating in the relevant market are included because of perceived easy entry, plaintiffs will have increased difficulty in demonstrating market power. Similarly, if committed entry is foreseeable, the threat of entry may offset the effects of any concerted action.

Section 2 of the Sherman Act addresses actual monopolization, attempted monopolization and conspiracies to monopolize. Again, the presence or absence of significant market power is a crucial element of an antitrust plaintiff's claim. If a defendant's market share is reduced by defining a market to include potential entry, that defendant might be deemed to lack the monopoly power required to establish a section 2 violation for actual monopolization.[133] Similarly, in an attempt to monopolize context, consideration of uncommitted or committed entry could also prevent a plaintiff from demonstrating the required dangerous probability of success required by the Supreme Court to prove attempted monopolization.[134]

If entry barriers, or the lack thereof, could be easily and reliably determined, consideration of that factor makes a good deal of sense. After all, if potential entrants offset threats to healthy competition in a market, there is no need to expend resources to correct a situation which the market will heal. On the other hand, if entry potential cannot be predicted with relative certainty, harm to markets may go unchecked.[135] Thus, determining whether lower federal courts are using entry barrier analysis in a manner that furthers or hinders antitrust policy is important.

Once a court determines that particular concerted action is not appropriate for per se condemnation, the court must assess the alleged illegality pursuant to a rule of reason analysis to determine the net competitive effects of the challenged restraint of trade. This requires product and geographic market definition to determine whether defendants possess any real power to influence price and output in a manner detrimental to consumers. Most frequently, courts attempt to determine the defendant's market share in order to assess whether a restraint can actually adversely affect the competitive process. In so doing, they often employ a market share "screen" to weed out antitrust cases where no threat to competition is presented.[136] If the market share is relatively small, the restraint is not unreasonable because it is highly unlikely to cause any negative impact on interbrand competition to the detriment of consumers. Consumers will have adequate alternatives protecting them against distortion of price and output. However, when entry barrier analysis is incorporated into the inquiry, even high market shares may not suffice. It is conceivable that easy entry may be deemed a sufficient deterrent or protection. Courts may either alter the market definition or conclude that no real economic power exists to thwart competition.

Section 2 of the Sherman Act proscribes monopolization, attempts to monopolize and conspiracies to monopolize.[137] In an actual monopolization case, plaintiffs must satisfy a two-pronged test requiring (1) proof of monopoly power in a relevant market and (2) acquisition or maintenance of the monopoly by exclusionary or predatory business behavior. In an attempted monopolization action, plaintiffs must also meet a two-pronged standard requiring: (1) specific intent to monopolize and (2) dangerous probability of success. For actual monopolization, market definition will be critical in satisfying the first element of the offense. In the absence of significant market power, a defendant cannot be legally charged with actual monopolization. The absence of high entry barriers might lead a court to conclude that the market should include uncommitted entrants, thereby preventing a plaintiff from establishing the requisite monopoly power. Similarly, in an attempt case, low entry barriers could be used to defeat the second element of the offense by precluding any dangerous probability of successful monopolization of relevant markets.

Federal antitrust cases have focused on these issues with regularity. A leading decision emphasizing an important role for entry barriers in Sherman Act analysis is Rebel Oil.[138] In Rebel Oil, gasoline retailers unsuccessfully appealed an entry of summary judgment for defendant (a gasoline wholesaler/retailer and crude oil refiner and driller) on Sherman Act claims alleging attempted monopolization and conspiracy to restrain trade through predatory pricing.[139] The Ninth Circuit explained that, while elimination of individual competitors "reduces competition," that reduction "does not invoke the Sherman Act until it harms consumer welfare."[140] Thus, to qualify as an anticompetitive practice, conduct must harm allocative efficiency and raise the price of goods above competitive levels or diminish their quality.[141]

The court delineated two ways in which market power may be demonstrated with respect to unreasonable restraint or dangerous probability of success of monopoly.[142] One possibility is direct evidence of anticompetitive injury based on proof of "restricted output and supracompetitive prices."[143] Alternatively, and more commonly, market power is proved by circumstantial evidence regarding market structure requiring; (1) market definition; (2) market dominance; and (3) proof of "significant barriers to entry" and an inability of existing competitors to increase short term output.[144]

The Rebel Oil court conceded that defendant's 44% market share might normally be sufficient to allow an attempted monopolization claim to proceed.[145] However, if "natural market forces" can cure a market problem, "judicial intervention into the market is unwarranted."[146] Thus, even though the court found entry barriers to be significant,[147] the absence of barriers to expansion of output by other competitors doomed the Sherman Act claims.[148] Rebel Oil seemed to place the burden of proving the existence of entry barriers and barriers to expansion squarely on antitrust plaintiffs whenever market power is brought into question. Even if a defendant's market share is very high, a failure to demonstrate the presence of such barriers could be fatal to a plaintiff's claim.[149] Other federal appellate[150] and district court decisions[151] seem to support the approach of the Ninth Circuit in Rebel Oil.

Conversely, some courts appear to be less demanding. High market share may be viewed as creating a presumption or permitting an inference of significant market power that defendants may rebut by demonstrating the absence of barriers to entry or expansion.[152] Although the difference between these two approaches may be subtle, it is potentially important. Expecting plaintiffs to plead and prove the existence of barriers to entry and expansion may impose obstacles that would not be encountered if defendants had the burden to prove ease of entry or expansion once plaintiffs had demonstrated high market share. Much of the evidence regarding entry and expansion could be more readily available to dominant firms. The difficulty of obtaining such information prior to filing a complaint could pose a problem for potential antitrust plaintiffs under Rule 11 of the Federal Rules of Civil Procedure. In addition, the Supreme Court's recent restrictions on the use of expert testimony, which may be essential in establishing the existence of entry barriers, could also create a formidable hurdle for plaintiffs.

The barrier to entry and expansion question has also crept into antitrust jurisprudence dealing with exclusive dealing and tying arrangements. Although these potentially anticompetitive practices were specifically addressed by section 3 of the Clayton Act, they also remain susceptible to attack under section 1 of the Sherman Act. Further, to a significant degree, courts have merged the analysis under both statutes and characterized these restraints as types that qualify for rule of reason treatment or some variant of that standard.[153] Consequently, market power plays a critical role in determining whether certain tying arrangements or exclusive dealing contracts violate the antitrust laws. To the extent that the use of these contractual provisions may actually create barriers to entry, the cases dealing with them are important sources of information in any analysis of entry barriers in American antitrust law.

In Omega Environmental, Inc. v. Gilbarco, Inc.,[154] the Court of Appeals for the Ninth Circuit, over a vigorous dissent by Judge Pregerson,[155] rejected an exclusive dealing claim brought pursuant to section 3 of the Clayton Act. The majority commented that "[t]he main antitrust objection to exclusive dealing is its tendency to 'foreclose' existing competitors or new entrants from competition in the covered portion of the relevant market during the term of the agreement."[156] Still, the court opted for a rule of reason approach, recognizing that efficiencies such as enhancement of interbrand competition might be derived from such contractual provisions.[157] In its ultimate determination that no antitrust violation had been committed, the court focused on the availability of "alternative channels of distribution"[158] and the fact that no entry or expansion had been deterred.[159] This ruling suggests that exclusive dealing analysis views the creation of entry barriers as both anticompetitive conduct and relevant to market share determination.

Similarly, the law regarding tying arrangements recognizes the importance of barriers to entry in antitrust analysis. Although it has been said that anticompetitive conduct "by one firm against another" is not an entry barrier,[160] the Supreme Court has recognized that ties can increase entry barriers and inhibit competition in the market for the tied product by requiring entry into both the tying and tied product markets.[161] Nevertheless, whether analyzed under the modified per se approach or a more conventional rule of reason, tying arrangements require significant market power in the tying product to foreclose competition in the tied product market. In assessing the market power in the tying product, entry barriers again become relevant to determine whether the defendant imposing the tie really possesses the requisite economic muscle.

In Little Caesar Enterprises, Inc. v. Smith,[162] a federal district court dismissed a tying claim alleging that a pizza restaurant franchisor had illegally tied the purchase of foodstuffs, beverages and other goods to the franchise itself. In a lengthy opinion, the court relied on both Fortner and Hyde to require that plaintiff demonstrate significant market power in the tying product.[163] Only in such circumstances would franchisees be coerced into purchasing the allegedly tied products. In rejecting the claim, the court explained that "[p]ower can be inferred from a large share of the relevant market or from other factors such as a unique product with no substitutes, . . . or substantial barriers to the ease of entry."[164] This phrasing suggests that a large market share alone might suffice. Another reading might be that easy entry could negate the perceived impact of holding a significant percentage of the tying product market.

Perhaps the most developed role for entry barriers in antitrust analysis may be found in the area of mergers. Since 1914, mergers have been subjected to antitrust scrutiny pursuant to section 7 of the Clayton Act. As revised by the Celler-Keafauver amendments in the 1950s, section 7 is a statute that proscribes mergers that may substantially lessen competition in a relevant market. Like section 3 of the Clayton Act, section 7 was designed to deal with probable rather than absolutely certain anticompetitive effects. A merger that posed a reasonable probability of significantly diminishing competition could be reached in its incipiency before post-merger unilateral or collusive practices could injure consumers.

Antitrust enforcement with regard to mergers has more recently undergone a major transformation. The "premerger notification program" introduced by the Hart-Scott-Rodino amendments has essentially taken most merger issues out of the adjudicatory process and placed them into the administrative process of the FTC and Antitrust Division of the Department of Justice. In reviewing proposed mergers to determine whether they pose a threat to competition, the FTC and DOJ apply the merger guidelines discussed earlier in this article.[165] These Guidelines discuss committed and uncommitted entry extensively. The Guidelines also utilize the presence or absence of entry barriers in both the definition of relevant markets and in assessing the likely competitive consequences of a proposed merger or acquisition.

Despite this shift from a judicial to an administrative process, cases still arise under section 7 and provide some insight into the ongoing role of entry barriers in merger analysis. The historical context is useful. During the 1960s, section 7 enforcement reached a high point and resulted in invalidation of mergers of questionable competitive significance.[166] These decisions were predicated on the so-called prima facie section 7 test derived from United States v. Philadelphia National Bank,[167] which condemned mergers producing "a firm controlling an undue percentage of the relevant market, and result[ing] in a significant increase in the concentration of firms in that market."[168] Cases relying on Philadelphia Bank seemingly extended it to mergers where either market definition was strained or market shares were quite low. This prompted Justice Stewart in his famous Von's Grocery dissent to express his frustration by exclaiming that "[t]he sole consistency that I can find is that in litigation under § 7, the Government always wins."[169] Ease of entry appeared to be of little or no importance in these cases.

During the 1980s, however, lower federal courts began to place greater emphasis on entry barriers in merger analysis. In United States v. Waste Management Inc.,[170] the Court of Appeals for the Second Circuit found that a merger resulting in a 48.8% post-merger market share satisfied the prima facie test of Philadelphia Bank. Nevertheless, the court declined to invalidate the merger because ease of entry precluded future anticompetitive effects. The court looked to earlier Supreme Court decisions in Procter & Gamble and Falstaff[171] to justify emphasis on ease of entry,[172] despite the fact that these decisions actually struck down mergers based on the transactions' elimination of potential competition through independent market entry. Thus, even though the Second Circuit conceded that the "Supreme Court has never directly held that ease of entry may rebut a showing of prima facie illegality under Philadelphia National Bank," it still relied on that factor to uphold a merger resulting in a significant market share.[173] In essence, because entry considerations had been used to bolster a decision to find a merger illegal, they could also be used as a factor to reach a contrary conclusion.

Another important example of the growing role of entry barriers in merger analysis (and antitrust jurisprudence generally) can be found in Judge Kozinski's opinion in the Ninth Circuit's frequently cited decision in United States v. Syufy Enterprises.[174] The case involved Syufy's acquisition of competing motion picture exhibitors in Las Vegas. In considering Sherman Act section 2 and Clayton Act section 7 claims, the court's analysis relied heavily on the absence of entry barriers. Judge Kozinski began his discussion by colorfully summarizing the role of competition in the American economy:

Competition is the driving force behind our free enterprise system. Unlike centrally planned economies, where decisions about production and allocation are made by government bureaucrats who ostensibly see the big picture and know to do the right thing, capitalism relies on decentralized planning-millions of producers and consumers making hundreds of millions of individual decisions each year-to determine what and how much will be produced. Competition plays the key role in this process: It imposes an essential discipline on producers and sellers of goods to provide the consumer with a better product at a lower cost; it drives out inefficient and marginal producers, releasing resources to higher-valued uses; it promotes diversity, giving consumers choices to fit a wide array of personal preferences; it avoids permanent concentrations of economic power, as even the largest firm can lost market share to a feistier and hungrier rival. If, as the metaphor goes, a market economy is governed by an invisible hand, competition is surely the brass knuckles by which it enforces its decisions.[175]

In the context of this general view of competition, the court then emphasized that if "there are no significant barriers to entry, . . . eliminating competitors will not enable a survivor to reap a monopoly profit; any attempt to raise prices above the competitive level will lure into the market new competitors able and willing to offer their commercial goods or personal services for less."[176]

Thus, the court determined that where entry barriers are low, market share does not accurately reflect market power. The court ruled that no antitrust violation had been committed.[177] Judge Kozinski concluded that there were no structural barriers to entry, no legal impediments, and no "onerous front-end" investment requirement to deter new competitors.[178] The court did, however, concede that a district court acts "within the legitimate scope of its discretion in determining that evidence of a high market share establishes a prima facie antitrust violation, shifting to the defendant the burden of rebutting the prima facie violation."[179] However, the court went on to assert that "[t]he converse is not true . . . [and] evidence of a high market share does not require a district court to conclude that there is an antitrust violation. In fact, such a conclusion normally should not be drawn where the evidence also indicates that there is no barrier to entry into the relevant market."[180]

Though seemingly sensible, these observations are also somewhat cryptic and confusing. The opinion could be clearer on allocation of the burden of proof with respect to entry barriers. On the one hand, referring to high market share creating a prima facie case suggests that it is the defendant's responsibility to rebut with evidence of insignificant or no entry barriers. On the other, suggesting that the absence of barriers to entry eliminates any claim of market power would seem to make the issue part of plaintiff's case because the plaintiff must allege and prove sufficient market power in antitrust cases not involving the per se rule of illegality.

In 2001, in FTC v. H.J. Heinz Co.,[181] the Court of Appeals for the District of Columbia Circuit reversed a federal district court's denial of a preliminary injunction in a merger case involving two manufacturers of baby food. Relying on the Supreme Court's decision in Philadelphia Bank, the court reiterated the section 7 prima facie test and noted that any merger that would produce a firm controlling an undue percentage share of the market and resulted in a significant increase in concentration creates a presumption of a Clayton Act violation.[182]

Defendants, however, may rebut the presumption of illegality by demonstrating that the market share data inaccurately reflects the probable effects on the market. One way to accomplish this is to demonstrate easy entry that would diminish or eliminate any probability of unilateral or collusive anticompetitive behavior after the challenged merger.[183] In Heinz, the court focused on the district court's findings that there had been an absence of significant new entry into the baby food market "for decades," and that entry was both "difficult and improbable."[184] This detracted from any argument that the reduced competition caused by the merger would be "ameliorated" by new competition from "outsiders."[185]

The Heinz opinion does not seem to view the existence or absence of entry barriers as a part of plaintiff's initial case. Instead, the opinion apparently uses entry barriers as a rebuttal argument for defendants in section 7 merger litigation. This would be inconsistent with approaches that require antitrust plaintiffs to demonstrate the presence of significant entry barriers as part of their prima facie case. There is a difference between courts permitting plaintiffs to introduce evidence of high entry barriers to buttress their prima facie showing and requiring such a showing. The Philadelphia Bank test is seemingly met simply by the demonstration of a merged firm's high market share and a significant increase in concentration. Yet some federal courts also require plaintiffs to plead and prove significant entry barriers as part of their proof of market power in cases not arising under section 7.[186] Despite cases like Heinz, the same may be said for some section 7 merger cases.[187]

V - WHAT IS THE PROPER ROLE FOR ENTRY BARRIER ANALYSIS?

In a post-Chicago world, the Supreme Court has explained that "[l]egal presumptions that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law."[188] Thus, antitrust cases must be decided on a fact intensive, case-by-case basis to allow a close examination of the "economic reality of the market at issue."[189] Economic theory is not an acceptable substitute for evidence and statistics within well-defined product and geographic markets.[190] If predictions regarding ease of entry prove wrong, anticompetitive effects may manifest themselves to the detriment of consumer welfare.[191]

The most useful and authoritative development regarding the role of entry barriers in antitrust litigation would be a clear articulation of standards by the Supreme Court. Although the Court's decisions have increasingly referenced barriers to entry, they fail to comprehensively explain the role entry barriers should play in the application of the various antitrust statutes. It is arguable that some lower federal courts are following ideas from the economic literature that may be inconsistent with the prevailing precedents.[192] Therefore, a detailed discussion of the definition of entry barriers and the allocation of the burden of proof would be beneficial in providing more clarity and certainty.

The Court's Sherman Act jurisprudence does not definitively assign a role to entry barriers in assessing the presence or absence of market power necessary for a section 1 violation or section 2 offense. A more definite role is required because plaintiffs in these actions face formidable elements of proof. More specifically, market or monopoly power alone is not enough to establish a Sherman Act violation. Rather, section 1 plaintiffs must demonstrate significant anticompetitive effects in well-defined markets in order to make out a prima facie case. In section 2 cases, plaintiffs must establish two elements. They must establish the existence of significant economic power within relevant product and geographic markets and demonstrate that monopoly power has been threatened, achieved, or maintained by exclusionary or predatory conduct. In other words, mere economic power is insufficient to violate the Sherman Act. Other categories of antitrust cases also make it clear that mere possession of market power does not establish a violation.

If plaintiffs must also bear the burden of demonstrating the presence of entry barriers, already formidable obstacles may become insurmountable. In the absence of any express Congressional intent requiring antitrust plaintiffs to bear this burden, a Supreme Court would be very helpful. Further, recent trends in Sherman Act section 1 jurisprudence have reduced the role of per se rules and increased the applicability of the rule of reason.[193] These developments already raise the bar for plaintiffs and make it more difficult to prevail. If courts are to consider entry barriers, a more balanced approach would place the burden of proof on defendants to prove easy entry.[194] Often defendants will be in possession of the best available evidence of low barriers to entry and/or expansion. Plaintiffs, on the other hand, must rely on extensive discovery to aggregate proof.[195] Also, when plantiffs predicate their allegations of low barriers on potential foreign competition, the pertinent evidence may be even more difficult to acquire.[196]

In addition, recent Supreme Court rulings may affect the role of expert testimony in antitrust cases. Expert testimony may be used to offer proof of the existence or absence of entry barriers, as experts may make predictions of future business activity within particular markets. The Supreme Court's decision in Daubert v. Merrell Dow Pharmaceuticals, Inc.[197] gave federal district court judges wide latitude in deciding whether to admit or exclude expert testimony under the Federal Rules of Evidence.[198] However, even admitted expert testimony regarding barriers to entry and expansion is not the equivalent of the hard facts necessary to rebut a prima facie antitrust case. Expert testimony constitutes a prediction or educated guess that may or may not prove to be accurate. Indeed, economists often disagree about the likely economic effects of a challenged practice and whether economic theory comports with market realities.[199]

Courts should also consider whether the nature of the alleged antitrust offense should affect the role of entry barriers. Some practices remain per se illegal, such as classic, "plain vanilla" horizontal price-fixing. In these instances, the presence or absence of entry barriers would remain irrelevant to the legal analysis. This is because the practice is so pernicious and anticompetitive and is therefore presumed to lack any procompetitive justification. However, for alleged offenses that are not of the per se variety, the required extent of an entry barrier should arguably vary with the alleged offense. For example, consider application of the so-called "quick look" rule of reason, where a practice is not condemned automatically but still raises substantial antitrust concerns. Perhaps in this type of case, a lesser showing of barriers to entry should be required than in "full blown" rule of reason cases.

The federal district and appellate courts are obviously not in complete agreement about whether proving the existence of entry barriers should be part of an antitrust plaintiff's case, or whether the burden of proving the absence of entry barriers should be placed on defendants in their attempts to rebut. This needs clarification. The Horizontal Merger Guidelines distinguish between committed entry and uncommitted entry in their attempt to determine whether potential entry should be part of the market definition element of an antitrust case or a defense to an otherwise questionable practice.[200] However, this attempt is sometimes lost on lower federal courts. These courts frequently fail to draw any distinction between very quick uncommitted entry and the committed entry within two years that involves incurring significant sunk costs.

Most importantly, the ultimate decision about the role of barriers in antitrust analysis should be made with a careful eye to the promotion of the goals of our federal antitrust laws. These goals have never been articulated with one voice[201] but the Supreme Court has recently made it clear that the primary, if not exclusive focus, should be on the economic effects of a particular challenged practice.[202] In addition, courts should be mindful of the supplemental role private antitrust enforcement can play in the maintenance of a competitive economic system. Judicial endorsement of additional obstacles to private antitrust suits could significantly undermine this valuable mechanism for keeping markets operating efficiently.[203] And, we should recognize that economic theory and speculation about the potential effects of allegedly high or low entry barriers is no substitute for the proof complying with the rules of evidence.

Rather than continue with federal district and appellate courts applying economic theory and entry barrier concepts in a haphazard and random fashion, several potential improvements could and should be addressed. First, and most importantly, the Supreme Court should clearly articulate the role of barriers to entry and expansion in antitrust market definition and competitive effects analysis. It will be necessary to decide whether allocative efficiency is the sole objective of antitrust law, or alternatively, whether consumer interests should be more broadly served by also examining wealth transfer and other issues. The Court also needs to determine what lower courts should consider to be entry barriers. Definitional precision and certainty may not be possible, but clarification would be quite helpful. Finally, the Supreme Court should decide the required height and duration of entry barriers in the context of various antitrust offenses.

It seems logical that government or private intervention is unnecessary to protect consumers if the absence of barriers to entry and expansion preclude anticompetitive effects from reducing output and raising prices in properly defined markets. Nevertheless, speculative evidence on entry barriers should not exonerate antitrust defendants when it is not clear that markets will be adequately protected from anticompetitive pricing and output decisions. It would make sense to require defendants to demonstrate the absence of barriers to rebut plaintiffs' offering of proof where product and geographic markets are properly defined and market shares are high. On the other hand, if plaintiffs cannot demonstrate significant market or monopoly power in any relevant market, it should be incumbent on those plaintiffs to bear the burden of proving the existence of significant barriers to entry or expansion. In any event, the ultimate inquiry must focus upon whether a challenged business practice has a net anticompetitive effect. As noted earlier, except in per se cases, this already puts a heavy burden on antitrust claimants. If the absence of entry barriers or barriers to expansion negates the potential for anticompetitive effects in product and services markets, questions might even arise as to the need for any per se rules given the self-correcting potential of the marketplace.

Given the conflicting views in the economic literature and federal case law, guidance from the Supreme Court is essential if there is to be any hope for consistency and predictability in American antitrust jurisprudence. The Supreme Court and lower federal courts have both shifted to the right in this area of the law, yet many of the more populist antitrust decisions of the Warren Court have not been overruled. Further, the enforcement philosophy of the Department of Justice and FTC should not be confused with duly enacted Congressional legislation that has remained largely intact since 1890. Judges, lawyers, and potential litigants will all benefit from a comprehensive delineation of the role of entry and expansion barriers in antitrust analysis.

Admittedly, some danger of "false positives" may arise when the burden of demonstrating ease of entry or expansion is placed primarily on antitrust defendants. However, legitimate concern regarding "false negatives" would develop if antitrust plaintiffs had to demonstrate the existence of such barriers in all cases except those involving conduct that is unlawful per se. Conserving the time and resources of the FTC, Department of Justice, and the federal judiciary must be balanced against the legitimate interests of consumers in maintaining efficient and competitive markets in the U.S. economy. Entry barriers may eventually reduce or eliminate the reduced output and higher prices that may accompany a particular trade practice. However, a significant wealth transfer to sellers of goods and services may result from practices that are legally cognizable under the antitrust statutes.[204] Speculation about the future impact of entry or expansion conditions is not a substitute for actual proof that trade practices addressed by the Sherman and Clayton Acts will not harm consumer welfare.

Thus, where antitrust plaintiffs demonstrate significant market shares attributable to antitrust defendants, it should be incumbent upon those defendants to present credible evidence to rebut the prima facie showing. If entry will be immediate or very quick, it makes sense to include that potential entry in the relevant market or to utilize that fact to minimize or eliminate any showing of anticompetitive effect. Placing the initial burden on a plaintiff to plead and prove the existence of significant barriers creates major obstacles to effective antitrust enforcement. If plaintiffs cannot demonstrate that defendants hold a significant share of the market, then it makes sense to require additional proof of entry and expansion barriers to bolster the plaintiff's claims. However, where market shares are substantial, the burden should be on antitrust defendants.

To reiterate, mere possession of a significant market share, or even a monopoly, is not itself an antitrust violation. Rather, plaintiffs must plead and prove the requisite net anticompetitive effects of a challenged restraint in any section 1 rule of reason claim. Tying and exclusive dealing are also not classic per se offenses. Also, in section 2 cases involving actual or attempted monopolization, antitrust plaintiffs must prove not only market power but also exclusionary or predatory conduct. This reduces the likelihood of "false positives" in antitrust enforcement.

CONCLUSION

American antitrust law is more than a century old and has developed from a long common law history in England and the United States. The law is rooted in legislation enacted pursuant to the power granted to Congress in the Constitution's Commerce Clause. Antitrust statutes are often skeletal and unclear and require a substantial degree of judicial interpretation, like some Constitutional provisions themselves. Nevertheless, even if courts do not feel bound to apply antitrust law in strict compliance with original legislative intent (if that can truly be gleaned from the legislative history), they should not depart entirely from the intended goals of Congress. Further, despite the expertise of antitrust enforcers at the FTC and Department of Justice, administrative enforcement guidelines should not and cannot effectively amend existing legislation without Congressional approval.

Arguably, current application of entry and expansion barrier concepts by lower federal courts has been consistent with some of the economic teaching. Nevertheless, courts need to be more cognizant of the gap between economic theory and the reality of antitrust litigation. If entry and expansion barriers are to continue to play an important role in the development of American antitrust jurisprudence, it is increasingly important for the Supreme Court to clarify their role. Lower federal courts, lawyers, scholars and competitors in the marketplace need to understand what entry barriers are and what their function will be in applying antitrust doctrine. Until this occurs, serious questions will linger about the definition of entry barriers and how their presence or absence will affect specific claims under the Sherman or Clayton Acts. Consumers, sellers, and buyers of goods and services deserve better.