Pressure exercised upon incumbent firms by the possibility that new or existing firms will enter a specific market (see Potential competitor). New entrants may be attracted by above-normal profits made in this market by incumbent firms, possibly as a result of weak competition. Additional firms entering the market will increase the overall quantity supplied with the effect that prices fall and above-normal profits disappear. Thus, the possibility of market entry has a certain ‘disciplinary effect’ on the behaviour of incumbents. However, the threat of potential competition is relatively small when entry barriers are high.
Source: Glossary of terms used in EU competition policy, Antitrust and control of concentrations, European Commission, 2002