Introduction to the Reform of Mexico’s Federal Economic Competition Law (LFCE)
In July 2025, a significant reform was introduced to Mexico’s Federal Economic Competition Law (LFCE). Article 53 now allows potential competitors to engage in absolute monopolistic practices, not just current ones.
Understanding the Rationale Behind the Reform
The reform’s rationale is rooted in the idea that what restricts a company’s market power isn’t necessarily established competition but the threat of new entrants. This potential entry can control prices, enhance quality, or stimulate innovation.
However, Mexico lacks a doctrinal development of the concept of potential competitors. There’s no legal definition or technical guidelines to ensure consistent application.
The U.S. Perspective on Potential Competition
In the United States, the Supreme Court has discussed potential competition’s value in various cases. Herbert Hovenkamp, a leading expert, explains that potential competition is dynamic, referring to players not currently in the market but who could enter if conditions change.
The U.S. doctrine distinguishes two aspects of potential competition: the perceived competitor, which suggests that mere entry threat is enough to discipline dominant firms; and the real potential competitor, implying that this actor would have entered had there not been obstacles like a merger.
Academic consensus is clear: without objective parameters, the concept can be misused. Evidence of probable entry, a reasonable timeframe, and market-disciplining capacity are necessary to discern if potential competition exists.
International Experience and Classic Criteria
The Organization for Economic Co-operation and Development (OECD) held a roundtable in 2021 where authorities agreed that potential competition is crucial in markets where innovation can rapidly alter the balance. However, they warned that if left to individual regulators’ discretion, the concept loses strength.
- Probability of Entry: Evidence that the potential competitor has the technical and financial capability to enter.
- Timeframe: The entry should occur within a reasonable time, not in a distant or uncertain future.
- Market-Disciplining Capacity: The entry should have a tangible and significant effect on prices, quality, or innovation.
These filters transform an abstract concept into a verifiable analysis.
The Path Forward for Mexico
In my view, incorporating potential competitors into the LFCE is a positive step. It acknowledges that competition isn’t static and that entry threats can be as crucial as established rivals.
However, the lack of criteria leaves authorities with a dilemma: apply the figure rigidly, risking investment discouragement, or laxly, weakening credibility.
The alternative is constructing technical guidelines. The new National Antimonopoly Commission has the opportunity to learn from international experience and academic reflection without copying foreign models. This knowledge can be harnessed to design suitable guidelines for Mexico’s context.
The potential competitor concept can become a powerful tool for the new authority’s preventive powers and investigations, provided it is given clarity and objective criteria. The challenge lies in building guidelines that offer certainty to all parties while strengthening the authority’s capabilities. If this balance is achieved, the reform will enable a more modern and effective competition policy.
Key Questions and Answers
- What is the significance of the recent reform to Mexico’s Federal Economic Competition Law? The reform acknowledges that competition isn’t static and that entry threats can be as crucial as established rivals.
- Why is it important to define potential competitors? Without clear definitions, the concept can be misused, leading to inconsistent application.
- What are the classic criteria for evaluating potential competition? Probability of entry, a reasonable timeframe, and market-disciplining capacity.
- What is the dilemma faced by authorities due to the lack of criteria? Applying the figure rigidly risks discouraging investments, while lax application weakens credibility.
- How can Mexico benefit from international experience and academic reflection? By constructing suitable guidelines based on this knowledge, Mexico can strengthen its competition policy.
