Indeed, there are a number of mono and oligopolies in Canada, mostly in industries that just can’t exist in small sizes over large territories: airline travel, phone service, etc. Note that it is hard to have a small phone company; even in the US (where a small phone company would still be 10X bigger than it would be in Canada), the small companies have been gobbled up or merged together.
Presently, we live in the second Gilded Age in which a few players dominate key industries. Most Canadians are aware of the major oligopolies and monopolies, but only fewer are aware of how industrial concentration has penetrated deep into nearly all areas of the economy: pharmacies, grocers, and even funeral services.
Note that the net effect of this concentration is that as Canadians go about their daily lives, they transfer a bit of their paycheque to monopolists and oligopolists. And despite the “efficiencies” that should be gleaned from having relatively few major players within industries, Canadians continue to pay some of the highest global rates for international travel, cell phone packages, and banking services.
This consolidation remains one of the reasons why inequality in the business field has proliferated to such high levels in recent decades. As corporate power has concentrated, the labor force has become increasingly isolated and dispersed.
Unionization rates for private-sector workers have declined and, most concerningly, reports now show a correlation between highly concentrated employment zones (often in rural towns) and a 15-per-cent to 25-per-cent decline in wages when compared with very competitive job markets.
Lack of competition hurts start-ups, consumers, and workers. Competition is an integral part of sustaining a thriving ecosystem of innovation and economic dynamism in Canada. Healthy competition among businesses fosters innovation and the ability for new entrants to compete. Competition is an indispensable element of capitalism. Yet, competition is withering away at a rapid pace, replaced by increasingly larger firms that dominate their respective industries.
When discussing economic inclusion, innovation and fostering Canadian entrepreneurs, serious attention should be paid to the antitrust actions of the Competition Bureau. The Bureau is an independent agency in charge of the administration and enforcement of the Competition Act and the review of corporate mergers to deter anticompetitive behavior and guard consumer interests. To compete internationally, Canadian regulators have often protected the larger players to the detriment of entrepreneurs.
All of this means a dangerous cocktail has emerged: Corporate power is more concentrated than before, while the mechanisms to reverse this trend are defanged and ineffectual. Note that this produces grave consequences for the economy.
Canada and the United States have been plagued by declining entrepreneurship rates and weak business dynamism since the 1980s. Canadian firms also spend less on research and development than many of their developed-country counterparts.
What are Examples of Monopolies and Oligopolies in Canada
- Canadian wireless telecom industry – Rogers, Bell, and Telus AKA “Robelus” (88.7 percent of the market)
- Canadians drink industry – ABInBev and Molson Coors (63 percent of the beer Canadians drink – including Becks, Budweiser, Corona, Miller, and seemingly smaller brands such as Granville Island Brewing).
- Canada’s airline market – WestJet and Air Canada (85 percent of the market)
- Canadian Banking industry – TD Bank, RBC, Bank of Nova Scotia, Bank of Montreal, CIBC.
- Canadian Smartphone sales – Apple and Samsung (81 percent)
The Enforcement Guidelines to Control Monopolies and Oligopolies in Canada
On March 7, 2019, the Competition Bureau (Bureau) published new Abuse of Dominance Enforcement Guidelines (2019 Guidelines). Note that these guidelines supersede the Bureau’s previous guidelines (2012 Guidelines) on sections 78 and 79 of the Competition Act (Act) and set out the Bureau’s approach to these sections of the Act.
The Bureau’s analytical approach can be broken down into three stages. First, the Bureau assesses whether a firm (or group of firms) is dominant. Second, it determines whether the conduct under review amounts to a practice of anti-competitive acts. Third, it assesses whether the impugned acts have or are likely to substantially prevent or lessen competition in a market.
Table of Content
Dominance is established by reference to the relevant product and geographic market and by analyzing whether one or many persons hold market power in that market. Howbeit, the Bureau recognizes that it is not always possible or necessary to conduct a market definition exercise (e.g., if a firm is dominant under all plausible definitions) to assess dominance.
2. Market definition
Note that the Bureau’s framework to define the relevant market remains the same in the 2019 Guidelines, but additional comments are provided on new market definition considerations, reflecting the Bureau’s 2018 report on big data:
- Multi-sided platforms. One or both sides of a multi-sided platform may now be defined as the relevant product market. When conducting a hypothetical monopolist test on such platforms, the Bureau tends to consider the relationship between demand, feedback effects, and changes in profit on all sides of the platform.
- Free services. When a firm provides its services for free (e.g., a multi-sided advertising platform willing to attract users), the hypothetical monopolist test may be adapted to assess non-price dimensions of competition (quality, innovation, etc.).
3. Market Power
After the relevant market has been defined, the bureau analyzes whether the allegedly dominant firm or firms hold the required level of market power in such a market. The 2019 Guidelines require the existence of a “substantial degree of market power”, instead of the broader “market power” requirement of the 2012 Guidelines. However, to identify such a degree of market power, the Bureau makes use of direct evidence of supra-competitive pricing or profitability or, if not available, market shares and barriers to entry.
Showing the TREB rulings, the 2019 Guidelines state that a firm that does not compete in a market may still substantially or completely control that market, for example by holding power to exclude current or potential competitors. Market shares may not be relevant in such cases.
- Market Shares and Barriers to Entry. The 2019 Guidelines indicate that market share data is often used as an initial screening mechanism to assess market power. The Bureau’s approach has slightly changed since 2012 in that respect: Removal of the 35 percent “safe harbor” threshold, generally no further examination below 50 percent, and No final market definition.
- Ability to Exclude. Just like it was mentioned above, the Bureau’s comments on the ability to exclude are new. They have been incorporated in the 2019 Guidelines to reflect the TREB rulings and provide for cases where a firm does not compete in the market where the alleged anti-competitive effects are incurred, but is dominant in an adjacent market and has the ability to control the market where the effects occur. According to the Bureau, an ability to restrict other market participants’ output and profitably influence price, notably through the control of important inputs or effective business rules, indicates market power.
4. The practice of Anti-competitive Acts
Anti-competitive acts are defined by their intended negative effect on a competitor, but the Bureau notes that they may not always be specifically directed at competitors (e.g., an act targeting the competitive process in itself can also amount to an anti-competitive act).
As indicated in TREB FCA, once a firm does not compete in the market where the alleged harm is occurring, the firm is expected to have a “plausible competitive interest” in negatively impacting this market. The 2019 Guidelines provide significant comments on two categories of anti-competitive acts:
5. Exclusionary Conduct
The 2019 Guidelines came with additional guidance on three types of exclusionary conduct:
- Exclusive dealing. This type of conduct happens when supply is restricted to certain versions of a product, or when a supplier prohibits purchases/sales of products from/to competitors. Note that it may be explicit or implemented through most-favored-nation (MFN) clauses or other contractual practices. The 2019 Guidelines recognize that exclusive dealing is not always anti-competitive.
- Tying and bundling. This type of conduct happens only when products are sold together or as a condition of purchasing another product. To determine if this conduct is anti-competitive, the Bureau may consider resulting efficiencies and the existence of separate customer demand.
- Refusals to supply. When a competitively significant product or service is being denied and cannot be otherwise feasibly obtained, the Bureau still reserves the right to conclude that the refusal was for exclusion purposes.
6. Disciplinary Conduct
Have it in mind that this category of the anti-competitive act was not discussed in the 2012 Guidelines. Disciplinary conduct more or less relates to actions to discourage competitors from competing more vigorously, or from disrupting the market. This includes pricing below the acquisition cost or the punishing of deviations from a coordinated conduct between competitors.
To determine whether a practice’s purpose was disciplinary, the Bureau will look for evidence of subjective intent. Nonetheless, as disciplinary conduct may be hard to distinguish from the true vigorous competition, the Bureau will still have to investigate such conduct in limited circumstances, mainly when the alleged conduct is prima facie disciplinary.
7. Business Justifications
A business justification for an alleged anti-competitive act it is believed might provide an alternative explanation for the overriding purpose of that conduct. As stated by the Competition Tribunal in TREB, compliance with a legal requirement may constitute a proper business justification.
The 2019 Guidelines explicitly state that the allegedly dominant firm has the burden to prove a business justification in support of the conduct under review, preferably using contemporaneous evidence asserting its motivation. Also note that the Bureau will assess whether alternative methods existed to achieve the firm’s business objective, and will examine the reasonably foreseeable consequences of the conduct.
As stated in TREB FCA, there is no need for the Bureau to quantify the efficiencies resulting from anti-competitive acts, but such efficiencies (qualitative or quantitative) will be considered by the Bureau in assessing any business justifications that are advanced.
8. Substantial Anti-competitive Effects
According to the 2019 Guidelines, adequate prevention or lessening of competition happens when a practice causes a materially greater degree of market power to exist, through new or increased market power, or the preservation of existing market power.
Remember, no threshold is provided by the Bureau regarding substantiality, but a smaller market power increase may be enough if the dominant firm already exercises a high degree of market power. The Bureau may leverage qualitative and quantitative evidence and might conduct the counter-factual test using direct evidence or natural experiments. To do so, the Bureau will consider the effects on prices and output, but also on innovation.
Have it in mind that the Bureau encourages voluntary compliance with the Act, and will often negotiate settlements through registered consent agreements. However, when the Bureau believes a party has engaged in abuse of dominance and consensual remedies are not appropriate or possible, it may make an application before the Competition Tribunal for a remedial prohibition order or other prescriptive measures.
Respondents of course have the right to defend such applications. Notably, AMPs for abuse are a controversial topic. The Bureau organizes AMPs as complementary remedies that serve the purpose of promoting compliance with the Act, and says it wants to ensure they do not become a “cost of doing business”.
But to determine whether an AMP is appropriate, the Bureau will consider the respondent’s collaboration with the Bureau, its compliance history, its intent, and other factors set out in subsection 79(3.2) of the Act.
10. Illustrative Examples
The last part of the 2019 Guidelines provides 10 new practical examples illustrating the Bureau’s updated analytical framework. Note that these examples cover topics like the mere exercise of market power, market definition, joint dominance, predatory pricing, exclusive dealing, tied selling, trade association rules, and disciplinary conduct and are helpful illustrations of the Bureau’s approach.
Lack of competition is bad for capitalism, and if capitalists don’t fix these issues, others who are more suspicious of commerce’s central role in a functional society will do so for them. Subsidized funding for start-ups in Canada’s ‘kill zones’ of telecoms and banking should be considered.
Relaxed regulatory burdens on smaller firms could also contribute, as regulation often strengthens dominant firms that have the resources to comply when small and medium-sized businesses often struggle to do so. Indeed competition is an integral part of sustaining a thriving ecosystem of innovation in Canada. It is time to disrupt the monopolies and oligopolies and restore competition to Canadian markets.