As the critical work of reimagining our competition regime begins, we must confront Canada’s cosiness with large firms that can abuse their powers.
by Vasiliki (Vass) Bednar. Originally published on Policy Options
February 21, 2022
I wish I could speak to “competition policy” without using those two words. They mean very little to the average Canadian. Yet Canada’s toothless Competition Act facilitates your pricey cell phone bill, excessive banking fees, growing grocery budget, and is even increasing the cost of buying a home.
Competition policy is an esoteric policy file that’s historically been restricted to lawyers and economists. It is integral to our everyday lives and the vibrancy of our economy, yet ironically it can be fantastically abstract to talk about.
On top of this general inaccessibility, the people who get paid per merger are heavily influencing the future of competition law. This inherent conflict is a functional barrier to catalyzing a common conversation about strengthening the legislative infrastructure that dictates what it means for a firm to abuse its power (“dominance”) ─ what is allowed when it comes to how a business behaves, and why abusing dominance is detrimental to competition.
Canadians must confront our country’s cosiness with large firms that may exploit their market power. We need to consider whether grocers may be passing on price increases masquerading as inflation while increasing their margins. We must move toward a more comprehensive competition strategy that leverages legislative tools complementary to the Competition Act, such as privacy law, consumer protection, and even new labour law to protect workers from monopsony power (whereby a firm has market power in employment, such as Uber in the gig economy).
The much-debated efficiency defence is becoming a loophole of sorts that is invoked by firms to justify harmful mergers. It’s the get-out-of-jail-free card that is likely to facilitate the Rogers-Shaw merger. Millions of Canadians are about to lose a competitor in an already limited telecommunications market. The Competition Bureau itself recently advised that “efficiencies should not be given primacy in merger review,” which is such a radical revelation for Canada. But simply dropping the defence altogether won’t be a silver bullet for the current act’s deficiencies.
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Historically, Canada has justified a system that favours concentration, scale and alleged efficiencies over consumers and small businesses by gesturing at our vast geography and modest population. Yet digital or data-driven firms like Amazon or Shopify exist and behave independently of our borders and bodies. The traditional rationales used to excuse our nation’s norm of consolidation and oligopoly are no longer legitimate in a digital era.
The key ingredients for improving the conversation on competition modernization in Canada are tangible case studies, data-driven analysis and fresh perspectives ─ all of which are in short supply. But those that exist are startlingly powerful.
A real-time case study that is testing the tolerance of Canadian consumers for consolidation is the monopolistic price hikes of Dye & Durham, a legal software company that has raised prices as much as 900 per cent in just over one year. The firm’s merger history is under review in the U.K. If the company’s merger history is reviewed in Canada, it will likely invoke the efficiency defence, then continue to increase prices for its services. Media coverage has focused on how the firm is increasing expenses for real estate lawyers, rather than how its activities relate to weak competition law. Another recent example that does not build confidence in Canada’s approach is last year’s “garbage merger” between Secure and Tervita, two Alberta companies in the energy and waste management sectors, whose merger was found to cause irreparable harm to the competitive process. The Competition Tribunal’s decision illustrates the current deficiencies in merger control. Further, citizens’ expectations are not aligned with the current framework, as 88 per cent of Canadians recently indicated that we need more competition because it’s too easy for big business to take advantage of consumers.
Canada lacks a dedicated competition-relevant research initiative, robbing us of a steady supply of key competition indicators. All the same, there are signs of consolidation among Canadian firms, according to the 2019 York University report Are Industries Becoming More Concentrated? The Canadian Perspective. Over the past 30 years, the rate at which Canadians start new businesses has fallen by half. That means, each year fewer and fewer Canadians are striking out on their own as independent actors in our economic system.
Many newer voices on the subject of competition are calling for a comprehensive review of the Competition Act. The act was last reviewed in 2008, the same year the App Store launched. Now the App Store itself is the subject of antitrust investigations in other jurisdictions, which are considering its role as a gatekeeper, its practices of restricting alternative forms of payment, and self-preferencing, which is when a platform that sells other people’s products engages in practices that favour its own products or services.
Considering the implications of these topics for our competition regime also challenges policy-makers to consider applying new international competition standards to a firm like Shopify, which is in a position to abuse its dominance by mandating that merchants facilitate payment with its proprietary processing system Shop Pay.
Confronting the business behaviours of Canada’s unicorns feels unlikely to happen anytime soon, despite recent assurance from the minister of innovation, science and economic development (ISED) that he is laser-focused on competition. That’s because the Competition Bureau lacks independence by virtue of being nested within ISED, where it enforces competition law against firms that could otherwise be contributing to the country’s economic growth as innovators. In this way, the ambition of innovation could at times be incompatible with responsible business behaviour.
Canada is lagging behind international peers on competition efforts, as shown by a recent compendium of approaches to improving competition in digital markets. An abundance of rich policy material from international peers exists, focusing on the implications of digital competition. For example, there is Australia’s digital platforms inquiry, the OECD’s Rethinking Antitrust Tools for Multi-Sided Platforms, Europe’s expert panel report on Unlocking digital competition, and the U.K.’s open consultation on reforming competition and consumer policy. U.S. President Joe Biden’s recent executive order on promoting competition should have been a wake-up call for Canada.
The Competition Bureau cannot conduct market studies, but decision-makers can learn from investigations elsewhere. The Institute for Local Self-Reliance’s recent report Amazon’s Toll Road found that Amazon is exploiting its position as a gatekeeper to impose steep and growing fees on third-party sellers. Certainly Canadian sellers may be experiencing this.
An investigation by The Markup into “Amazon’s Advantage” found that Amazon puts its own brands first in search results, above better-rated products.
Given the growing popularity of online marketplaces that engage third-party sellers in Canada like The Bay, Mark’s, and Loblaws, similar investigations are relevant for Canadian sellers.
As policy practitioners start to examine the durability of key facets of the Competition Act, they can import existing literature from scholars and peer jurisdictions that engages with contemporary competition questions. These are the kinds of questions we need to be asking ourselves.
In September 2021, legal scholar Ed Iacobucci published Examining the Canadian Competition Act in the Digital Era, which was followed in December by a limited consultation that invited responses to the paper. Iacobucci and Senator Howard Wetston have taken on the incredible work of distilling the responses into a narrow set of considerations, to identify areas of consensus. It’s exciting to anticipate the potential for general areas of consensus to translate into quick legislative wins. But any unanimity should be the ignition for continued exploration and debate, not the conclusion.
Thanks to the initiative of Senator Wetston, and propelled by the interest of and commentary from other stakeholders, policy and legal practitioners have just started the critical work of reimagining our competition regime in Canada. At this point, a general lack of competition is basically a part of our heritage. Canada’s competition commissioner said it best in October 2021, when he asserted that “Canada needs more competition.”
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Sculpting a modern, “made-in-Canada” approach to competition will defy the characteristic that competition law holds in highest regard – efficiency. Instead, it will be complex, occasionally cumbersome, and definitely passionate. Most of all, it will be worth it.This article is part of the Canada’s Competition Law is Overdue for an Overhaul special feature series.
This article first appeared on Policy Options and is republished here under a Creative Commons license.
