Competition in the Irish Private Health Insurance Market

5. BARRIERS TO ENTRY
Summary
5.1 Barriers to entry matter because it is important to determine whether
or not entry will alleviate or deter anticompetitive conduct. In its
merger guidelines the Competition Authority considers barriers to entry
to be any direct or indirect limits or restrictions on the ability of a
potential firm to enter a particular market. There are two main types of
barriers to entry:
• Strategic barriers that may arise as a result of a strategic
decision or commitment of the incumbent(s).
• Structural barriers that may arise as a result of factors other
than those controlled by incumbent(s).
5.2 The first type refers in general to barriers created by the incumbents
such as reputation or brand loyalty. The second category of barriers
would include barriers such as regulatory or administrative restrictions,
switching costs or transactions costs. It might also include high market
penetration. Some barriers can be classified under either category.
5.3 Submissions received by the Authorities argue that barriers to entry
exist in the Irish market for private health insurance in a range of
different areas. Some of these arguments relate to the regulation of
the market or barriers to rivalry and are considered in other chapters.
In this chapter regulation of the market is also considered to some
extent (i.e. risk equalisation and solvency requirements) but in the
main we consider the extent to which barriers to entry have resulted
from the structure of the market and first mover or incumbent
advantages.
5.4 The extent to which market penetration and set-up costs constitute a
barrier to entry is also considered. Views differ significantly amongst
market players in relation to the potential for future growth in the
market. While relative to other markets the penetration level is high,
the market continues to grow. It is also relevant to note that, in
interviews with potential new entrants to the market conducted by the
Authority, high market penetration was not cited as a major deterrent
to entry. Likewise, consideration of investment and set up costs would
not indicate that these constitute a major barrier to entry.
5.5 In relation to incumbent advantages, the chapter concludes that Vhi
Healthcare benefits from a number of first mover advantages, including
a large market share, brand and product recognition, relationships with
employers and relationships with healthcare providers. It is considered
that these advantages constitute a significant barrier to entry. It is
noted that one way of addressing this barrier to entry would be to
break up Vhi Healthcare.
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