Schreuder and Baayen (Schreuder. R., & Baayen, R. H. (1997). How complex simplex words can be. "Journal of Memory and Language" 37, 118-139) report that lexical decision times to nouns are not sensitive to the cumulative frequency of the noun's morphological derivatives in its ''morphological family'', even though such a cumulative frequency effect is obtained in the domain of inflection. Under a decomposition view of derivational morphology, this constitutes a puzzling exception to the robust finding that lexical frequency is one of the major determinants of behavioral response latencies. If morphologically complex words are decomposed, each occurrence of a member of a noun's morphological family should add to its root-frequency. We investigated the effects of morphological family frequency on the magnetoencephalographic response component M350, which shows sensitivity to factors affecting early stages of lexical processing, including lexical frequency. We hypothesized that high morphological family frequency should have a facilitory effect on the M350, even though no such effect can be seen in response time, presumably due to competition among possible root-affix combinations. Contrary to this hypothesis, we found that high family frequency elicits an M350 inhibition, suggesting that competition among morphological family members occurs at the M350. The result is significant, since there is evidence that competition among phonologically similar words occurs after, not at, the M350. Thus, our results suggest that competition within a morphological family precedes competition within a phonological similarity neighborhood.