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Posted on May 31st, 2012, by

Basically, practically all companies target at the minimization of the competition and attempt to weaken their competitors considerably or, at least, to decrease the opportunity of the appearance of new competitors in the market. In order to fulfill this goal some companies attempt to create entry barriers by means of increasing investments in order to raise the entry barriers that naturally prevents smaller companies from entering the market.

Such a strategy is often viewed as an extremely arguable since it raises questions concerning the extent to which such a strategy meets the norms of the antitrust law. Nevertheless, this strategy is used and its popularity is growing while it is quite difficult to determine whether it really violates the antitrust law or probably it is just a fair competitive struggle of companies for higher quality of services and production and the normal struggle for customers.

In spite of the fact that this strategy may be viewed as unfair, from the point of view of the antitrust legislation, it still can be applied and, in actuality, it is hardly possible to directly accuse a company in the violation of any legislative norms as long as its position is not monopolistic. In this respect, it is possible to refer to the Hilton hotel industry, where the Hilton Hotels traditionally played the leading role. Naturally, attempted to benefit from its leading position and attempted to increase the entry barriers investing in its infrastructure, hotels, restaurants and developing new services. Nevertheless, such policy, which presumably may be viewed as such that violates the antitrust legislation, did not prevent the company from the growing competition from the part of new players that later appeared in the Hilton hotel industry, such as the Marriot Hotels and the Starwood Hotels (Howard 298).

These two companies also used investments simply to become more competitive in relation to the Hilton Hotels and it is hardly possible to accuse the Marriot Hotels and the Starwood Hotels in the unfair competition in relation to smaller companies which cannot afford such level of investments that actually creates an unsurpassable barrier on their way to entering the Hilton hotels industry. At the same time, the growing investments improved the position of both companies in the industry to the extent that now they occupy the leading position in the industry while the Hilton Hotels is gradually losing its leadership (Howard 305). Obviously, such would be impossible if the Marriot Hotels and the Starwood Hotels did not invest so much that naturally increased the entering barrier.

Taking into consideration the fact that the high level of investments may be viewed as an essential condition of entering some markets, it seems to be quite logical to presuppose that the effect of such strategy should be discounted for establishing market power. In fact, since the investment is essential condition of entering the market, their effects should not be really taken into consideration because it does not constitute the real market power but it is rather a tool that depend on the current market situation and can be changed by the current policy of the leading companies operating in the market. For instance, if the three companies operating in the Hilton hotels industry mentioned above decrease their investments their general effect on entering barriers would be hardly changed and the market value of these companies will be extremely high for their potential competitors.

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