Unleash Canada’s competition watchdog: Improving the effectiveness and ensuring the independence of Canada’s Competition Bureau

tags

Competition

Outgoing Canadian Commissioner of Competition reflects on the law, the Bureau, modern markets, etc

Notes

Introduction

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Unnecessary government regulation in place of free markets imposes costs on businesses and stifles innovation and productivity.

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Free market capitalism is now recognized by even the world’s most communist and socialist regimes as the undisputed system for generating wealth and innovation.

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the Bureau has a degree of functional autonomy from ISED and positions itself as an independent law enforcement agency. It is, however, important to note that the Bureau’s stated independence from ISED does not necessarily extend to competition policy settings.

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calls for greater structural separation to protect the Bureau from potential political interference. Public debates on this very subject arose after the failure of proposed bank mergers in 1999 and the following year, during Air Canada’s acquisition of Canadian Airlines,

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(OECD) has also raised concerns with the appearance of conflict of inter- est stemming from the lack of perceived independence of the Bureau

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recommending an integrated agency model, similar to those found in the U.S. (Federal Trade Commission) or in Europe (Directorate General Competition), whereby the Bureau would become both investigator and adjudicator of competition cases, as opposed to the current bifurcated model, where matters are adjudicated by the courts or the Tribunal

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advocated for the creation of a Canadian Competitiveness Council, an independent agency with a broad mandate to publish about, research on, and serve as the public advocate for competition.

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suggested that the Bureau does not have sufficient resources to effectively carry out its broad competi- tion policy mandate.

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court decisions (e.g. the Supreme Court of Canada (SCC) in Tervita) that require the Bureau to quantify anti-competitive effects,

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rising costs associated with handling digital records.

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balanced approach to its mandate, including education, advocacy and enforcement. This serves to limit the need for costly and time consuming contested proceedings

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Historical Background

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Prior to 1976, the Combines Investigation Act, the predecessor of the Act, was entirely criminal in nature.

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elimination of the Director’s market inquiry powers.

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Additionally, in order to prohibit or seek divestitures in a merger under the new law, the Director was now required to demonstrate that the merger has or was likely to “prevent or lessen competition substantially”. However, the Tribunal was not to make an order if the merger was likely to bring about “gains in efficiency that will be greater than, and will offset”, the anti-competitive effects. This unique “efficiencies defence” included in the merger provisions was heavily influenced by the “Chicago School” approach

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observers have charac- terized the efficiencies defence as a necessary public interest consideration within the Bureau’s merger review processes, which do not promote consumer welfare – a more common objective of competition laws.

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the Bureau advocated for the amendment of the merger provisions by narrowing the efficiencies defence so that efficiencies would be considered as a factor in the assessment of the effects of a merger, more in keeping with a consumer welfare standard.

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Non-merger efficiency considerations were also considered

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In 1995, the Mulroney government dismantled the Department of Consumer Affairs in a structural overhaul that saw the Bureau of Competition Policy become part of the Department of Industry.

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Director of Investigation and Research became a member of the departmental management committee, whose discussions of indus- trial policy related to support for national champions, among other things. These were anathema to the Bureau,

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In 1993, the Bureau adopted what, in my experi- ence, is the best tool to prosecute and deter cartels - its immunity program.

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significant change to how the Bureau dealt with the most serious cartels, increasing fines to $25 million and jail time to 14 years, while simultaneously making cartels per se illegal and removing the so-called “undueness provisions”.

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Shared Compliance

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shared compliance, namely the interrelated roles of the Bureau, legal and business community towards compliance with the Act.

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Increased Guidance

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Improved Relationships and Collaboration

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Current Issues in Competition Law and Policy

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Never has it been more challenging to be a competition agency.

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One major issue that competition agencies are faced with is the current populist concern over rising concentration and economic inequality,

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commonly referred to as the “hipster antitrust” movement.

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Radically, in response to the emergence of big technology companies such as Google, EU policymakers have suggested regulating online platforms in the same manner as public utilities and breaking them up.

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The problem with those advocating for a new framework for com- petition law enforcement is that they generally ignore the purpose of competition laws, which is not to rein in big companies or enforce specific outcomes. Rather, their purpose is to protect consumers by protecting competition and to foster economic welfare.

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Size in and of itself is not a competition law violation and reports that note rising concentration lack this critical nuance.

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These statistics, for example, are misleading because they cannot discern whether the consolidation arose to achieve economies of scale, which would benefit consumers and economic welfare.

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while inequality, fairness and political power are legiti- mate concerns, stretching the traditional competition framework to try to address these problems is not an appropriate solution.

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one way to introduce more competition into the economy that the ‘concentration debate’ does not emphasize enough, is to make markets more open for both domestic and international competitors. An open economy can limit market power by making markets more contestable.

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foreign investment barriers preventing change that is essential for a modern, thriving economy.

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Government price control and other regulations remain in Canadian markets

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This over-regulation and protection of markets, particularly where inputs are concerned, harms Canadian competitiveness and productivity,

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I strongly support the proposition that public restraints to competition can do much more harm to the economy than private restraints.

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Bureau Approach

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Strong, Principled Enforcement

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targeting the most egregious offences in antitrust– hard-core cartels directed at price fixing, bid rigging, market allocation and output restriction.

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The incentives to cooperate with the Bureau are powerful and the existence of the program itself acts as a strong deterrent against the formation of cartels. Having said this, the unsuccessful conclusion of both the aforementioned cases were a strong signal that improvements were needed.

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our decision to not move forward with a challenge, unlike our U.S. counterparts, serves as a living example of the way in which the Act’s efficiency defence is both misaligned with our international partners, and harmful to Canadian businesses and consumers.

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Although our review concluded there would not be significant anti-competitive effects arising from the above proposed transaction, we subsequently opened up an investigation into Postmedia/Torstar when evidence was uncovered that suggested potential violations of the cartel provisions of the Act on the part of the merging parties. The Bureau thus demonstrated that, true to its word, it would not hesitate to act.

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Enforcement in the Digital Economy

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Abuse of Dominance

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Deceptive Marketing Practices

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Astro-Turfing

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As part of an agreement reached with the Bureau, Bell Canada affirmed its commitment not to direct, encourage or incentivize its employees or contractors to rate, rank or review apps in app stores.

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Drip Pricing

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early 2018, when it took legal action against Ticketmaster and its parent company, Live Nation, to stop them from allegedly making deceptive claims to consumers when advertising prices for sports and entertainment tickets.

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Misleading Advertising

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Volkswagen

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Advocate for greater competition

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Aligning Priorities with the Government of Canada

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Since 2011, when the Bureau’s policy function was claimed by ISED, its formal policy role has been largely non-existent.

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fine tuning rather than a drastic overhaul.

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Canada must not succumb to the growing, vocal calls of the so-called ‘hipster antitrust movement’ and amend its legislation to include a public interest function for the Bureau. Canada’s current competition law, soundly based on normative economic principles, is well placed to continue to serve its valuable role. Any efforts to revise it to include considerations put forward by the populist antitrust movement would severely undermine it.

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Recommendations for Reform – Moving Forward

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Canada’s competition law must continue to be grounded in the well-established economic theory that open markets are the most effective means of allocating resources, promoting efficiencies, improving productivity, spurring innovation and increasing economic growth.

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Recommendation 1 - Reform to Improve Governance, Resource Allocation and Independence

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Independence

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the Bureau’s independence is the single most important issue it faces going forward.

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The Minister of ISED has consistently been the most lobbied figure in the Canadian federal government.

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It is an apparent conflict of interest for the Bureau to report to ISED, and to have com- petition policy functions housed within ISED, given that their primary role appears to be to advance industrial policy, to promote the growth of specific domestic businesses and to advance national champions.

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Autonomy

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Since I assumed the office of Commissioner in 2013, the Bureau’s core budget has been frozen, and will be further decreased by 5% for the coming three years.

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The Bureau’s budget for the fiscal year 2017-18 is $47.9 million and this includes 364 full-time employees (FTEs), numbers that have decreased steadily since the 2011-12 fiscal year, when the budget and FTEs were $51.4 M and 400, respectively.

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the Bureau serves an revenue centre for the Canadian government,

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Recommendation 2: Legislative and Regulatory Reform to Support a Modern Bureau

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Converge Laws to Reflect International Standards.

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Consumer welfare should become the sole objective of the Act.

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The statutory efficiencies defence in merger review, which is found in no competition legislation other than South Africa’s, should be repealed and replaced with the international standard for efficiencies claims.

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efficiencies should be one factor considered among many economic factors

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Tervita narrows the application of the Act by elevating quantifiable harm and favouring static price effects over competition considerations important to the digital economy. As a result, the Tervita decision allocates negative effects on innovation, usually a non-price effect, to a secondary consideration

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Canada’s approach to efficiencies means we are accepting reductions in competition in exchange for static and short-run fixed cost savings, which may or may not come to fruition.

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Return Express Market Study Powers to the Bureau

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New and Stronger Consumer Protection Law to Instill Trust in the Online Marketplace

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Greater Private Access to the Competition Tribunal

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Repair Inefficient Cartel Enforcement Model

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enable the Bureau to proceed against hard-core cartels using a “dual track” approach.

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Require government procurement authorities to produce bidding information on request from the Bureau

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Improve the Bureau’s IT tools and online forensic skills,

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significant finan- cial rewards to whistleblowers

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In the US, the Securities and Exchange Commission (SEC) has returned hundreds of millions of dollars to investors in the last 6 years as a result of its wildly successful whistle-blower program.

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Create a Formal Notification Procedure for Pay-For Delay Agreements

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patent litigation settlements between branded and generic pharmaceutical companies in which the generic company agrees to delay entry into the market in return for a large payment by the branded company.

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Recommendation 3 - Structural Institutional Reforms & Improvement of Procedural Fairness

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Speed up Bureau Investigations and Tribunal Adjudication Processes to Remain Relevant with the Pace of Change in the Digital Marketplace

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Provide Express Authority to “Name and Shame”

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Bureau could increase its use of warning letters

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Earlier Engagement with Targets and Merging Parties

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Create a Chief Technology Officer Position within the Bureau

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becoming essential that agencies have the technical expertise on-hand to provide input on matters involving digital markets

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Conclusion

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