Keldon Bester

Report Reveals the Extent of Canada’s Competition Problem

Earlier this month, Minister of Innovation, Science and Industry François-Philippe Champagne announced his intention to review Canada’s Competition Act, beginning with potential near-term changes to address wage fixing, deceptive pricing practices and Canada’s anemic penalties for anti-competitive conduct. The day after the announcement, the Competition Bureau released its submission to Senator Howard Wetston’s recent consultation on the Competition Act, laying out the enforcer’s vision of the problems with our current law, and of what a modernized competition regime could look like for Canadians.

While the interest signalled by the minister is a positive step, the breadth of issues highlighted by our sole competition enforcer, hardly a radical advocate, shows how out of step Canada is with its competition laws, especially relative to international peers already acting to update their laws.

The most troubling aspect of the Bureau’s submission is its commentary on its ability to address threats to competition in fast-moving digital markets. The motivation for international reviews in Australia, the United Kingdom, the European Union and the United States over the past five years has been the fitness of competition law regimes for the competitive challenges of digital markets, recently summarized in a Group of Seven policy compendium. The Bureau suggests that across mergers, abuse of dominance and agreements between competitors, the Competition Act does not adequately support the protection of competition, particularly in its protection of emerging competitors. Regarding mergers, the Bureau goes so far as to say it would be “particularly difficult — or even impossible” to block the acquisition of a nascent competitor, especially in a dynamic market.

While the Competition Bureau’s contributions to the policy dialogue are invaluable, they come well after other countries have not only studied their own laws but also begun to take action to address the weaknesses identified in those studies. Last year, the United Kingdom began consulting on reformed competition legislation, based on the recommendations of the 2019 Unlocking Digital Competition: Report of the Digital Competition Expert Panel (“the Furman Report”). The reforms are intended to better address the power of entrenched players in digital markets deemed to have “strategic market status,” including consideration of a higher bar for dominant players to acquire competitors. The European Union has already completed its consultation on the Digital Markets Act introduced in 2020, which is anticipated to pass later this year.

If the Bureau’s concerns are justified — a point sure to be contested by Canadian competition law practitioners — Canada is years behind partner countries in assessing the extent of the limitations of our law, let alone in modernizing our legislation to address those limitations.

Read the full publication here.

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by Keldon Bester

Canada’s Competition Law: Is It Really Up to the Task?

Despite growing calls for scrutiny and reform of competition law around the world in the wake of rising corporate power, the urgency to curb monopolies is lacking in Canada.

While legal experts and think tanks work to assure policy makers we have the right rules in place, a close look at Canada’s record should give observers pause. Whether Canadian law can address challenges to competition is an increasingly open question, particularly in light of the rise of digital markets.

The title of a recent report by the Macdonald-Laurier Institute, Up to the Task, captures the general mood in much of Canada’s competition community well. While its authors, Anthony Niblett and Daniel Sokol, concede there may be a need for tweaks at the margins — for example, higher fines to reflect the increased scale of digital companies — they see nothing more than incremental reform, if that, as necessary.

But actions by our international partners, and the limits of our current laws in protecting competition, suggest that the status quo is worthy of deeper investigation.

It could be, perhaps, that Canadian policy makers had the foresight decades ago to craft a legal regime with the flexibility to respond adequately to ensuing major economic shifts. However, the confidence in the current state should be tempered by a recognition that the performance of Canada’s competition laws has yet to be thoroughly studied. And it belies the evidence that serious problems already exist in key areas of enforcement.

To begin, Canada is one of a shrinking number of peer countries that have not conducted a formal review of the effectiveness of its competition laws in the context of the rise of digital markets. Indeed, the last formal review of the Competition Act concluded well over a decade ago, in 2008, the same year Apple released the App Store.

Meanwhile, governments and regulators in the United States, the European Union, the United Kingdom and Australia all have conducted in-depth analyses of the performance of their competition laws in digital markets — analyses that have since prompted legislative or fiscal action, with increased scrutiny of dominant players as a common theme. Canada can capitalize on the work already done, but a lesson we should take away is that our peers found their own status quo to be lacking, and have already responded decisively.

In 2019, Navdeep Bains, the minister of innovation, science and economic development at the time, requested that Commissioner of Competition Matthew Boswell work with Bains’s departmental staff to review the fitness of Canada’s Competition Act for digital markets. While commentary by the commissioner suggests this work is ongoing, no public reports have emerged from that request, nor is there any timeline for any to emerge. Competition does not appear to be an element of the government’s near-term digital policy agenda. There was just one reference to fair competition in the Liberals’ 2021 platform, and other digital policy priorities, such as broadcasting reform, online harms, and news media funding, compete for the government’s attention. In short, inertia persists, despite repeated public calls for a comprehensive review of the Competition Act by Commissioner Boswell, who has highlighted the limits of enforcement in less glamorous but important markets such as industrial waste management.

This lack of urgency is cause for concern when assessing the performance of merger enforcement, a cornerstone of Canada’s competition law. Canada’s merger laws provide the Competition Bureau with the authority to challenge transactions that have the potential, in the language of the law, to “substantially lessen or prevent competition.” Effective merger law is critical, because mergers can be employed by dominant players to quash nascent competitors, which can lead to lasting harms such as higher prices, lower quality and innovation stagnation for the individuals and businesses that depend on competitive markets.

Unfortunately, Canada’s enforcement track record regarding mergers is quite poor. For one, the Competition Act, in particular section 96, known as the efficiencies defence, allows for mergers to monopolize, where competition in a market is extinguished and consumers must rely on the sole remaining business for a given good or service. In the past, mergers of this kind have left Canadians at the whim of a single corporation for access to essential goods such as propane.

Further, in the nearly 20 merger challenges that have gone before the Competition Tribunal, which first hears civil competition cases, the Bureau has only been successful in a single challenge. While there is no magic number of cases for the government to win to prove our competition regime is up to snuff, a regime in which interventions are practically never successful does not inspire confidence.

It is no surprise, then, that rather than taking these potentially harmful transactions to court, the Competition Bureau is more likely to negotiate consent agreements with merging parties to remedy the harmful effects of a merger. These agreements can include conduct requirements, such as commitments not to raise prices for a set period of time, or divestment of assets away from the merged company to bolster another competitor, for example, gas stations in markets with few remaining competitors, in exchange for allowing a merger to proceed.

Read the full publication here.

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by Keldon Bester

Canada’s Competition Act needs an overhaul

The New York Senate voted recently to pass a bill that would make ambitious changes to the state’s anti-trust law. The bill, which must still be passed by the State Assembly before it becomes law, is novel in the North American context in that it would establish new legal standards for assessing abuses of dominance. These new standards, which mirror those of the European Union, would make it much easier for the state’s attorneys to sue businesses for anti-competitive conduct. The bill would also make changes that directly benefit workers, acknowledging the role of corporate dominance in suppressing wages and eroding work quality. At the federal level, U.S. lawmakers have released an “Anti-Monopoly Agenda” comprising five bipartisan bills intended to “restore competition to the digital marketplace and rein in the largest tech platforms.”

While lawmakers in the U.S. are pushing innovative and well-needed reforms to their anti-trust laws, Canadians are increasingly becoming frustrated by the growing dominance of oligopolies in our economy. There is no doubt that policy decisions in the pandemic have implicitly privileged larger firms. For instance, in several provinces people were restricted from purchasing “non-essential” items at dollar stores, but they were able to purchase those same items at Loblaw-owned Shoppers Drug Mart.

In the bigger picture, current data on the degree of corporate concentration across the Canadian economy highlights that oligopolies are not limited to just certain sectors. Concentration of publicly traded firms in half of Canadian industries has increased by 40 per cent since 1998, and one-third of Canadian industries saw concentration increase by over 50 per cent. This means that large firms have become more dominant and could have more market power. Publicly traded Canadian companies in highly concentrated industries have seen significant increases in profitability. This is likely driven by their ability to extract higher prices, and not by efficiency gains.

To promote a just and resilient economy through anti-monopoly law, we need comprehensive legislative reform. Current policy debates in the space avoid this idea for two main reasons. First, the Competition Bureau, as a subsidiary of its federal department, does not have the authority to speak on the subject. Second, corporate interests tend to crowd out any meaningful competition-related discussion, making it difficult for more people to engage.

Policy makers and the Competition Bureau are not consistently acknowledging reality. In an April appearance before Parliament’s Standing Committee on Industry, Science and Technology, Commissioner Matthew Boswell called for the Competition Act to be reviewed comprehensively, with an eye toward ensuring that our laws are up to date and properly protect Canadian consumers and businesses.

But later, at a recent summit held by the Competition Bureau, conversations quickly devolved into an anti-regulatory-burden cheer squad. Based on the discussions there, you could be forgiven for believing that Canada’s competition problem is not our declining dynamism, increasing concentration across the majority of our industries, or the unique dynamics of digital markets that undermine competition, but rather the continuing supply management of dairy, which makes up a whopping 1.2 per cent of our economy.

Canada’s competition law, which is designed to protect Canadians from monopoly, is woefully ill-suited to the task. For instance, Canada’s merger law allows firms to swallow rivals to attain monopolies in markets such as propane distribution. The last successful abuse of dominance case took an astonishingly long time – over seven years – to reach a conclusion. Canada’s sole competition regulator, the Competition Bureau, only just received its first budget increase in over a decade.

The growing dominance of certain corporations in the Canadian economy has considerable implications for a fair postpandemic economic recovery. There has been ample coverage of Canada’s largest businesses receiving government COVID-19 support while also paying out dividends and bonuses to executives. Many of Canada’s and The globe’s largest digital companies grew through this pandemic. Meanwhile, small firms have recorded almost double the rate of job losses as mid-sized and large firms.

As large firms gain dominance, they can accrue market power – including the ability to set prices and wages – without opposition from consumers or workers. The OECD estimates that, absent excessive market power, the incomes of the poorest 20 per cent of Canadians could be 20 per cent greater and the wealth held by the top 1 per cent could be 24 per cent lower. As competition continues to decline, inequalities caused by imbalances in market power will only widen.

Read the original publication here.

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by Keldon Bester