Michael Osborne is chair of Cozen O’Connor’s Canadian competition law practice
The federal government has introduced a bill, C-56, containing amendments to the Competition Act that the government claims will make groceries affordable again. Some of the amendments are good, more are bad, but most are useless.
The one good amendment proposes to broaden a provision that allows the Competition Tribunal to end agreements between competitors that harm competition. The bill adds a power to end agreements between non-competitors whose purpose is to lessen competition. This could be used to remove property controls that the bureau claims are used by grocers to prevent competitors from opening up nearby.
But the amendments in Bill C-56 are mostly useless because competition law, which seeks to prevent monopolies and cartels, is not designed to solve macroeconomic problems like inflation.
Economists tell us that inflation is caused by expanding the money supply too quickly. Shocks caused by the COVID-19 pandemic and Russia’s invasion of Ukraine have also driven up prices for various commodities. By design, competition law cannot limit increases in the money supply; that’s the job of central banks. Nor can it address supply shocks.
Rather, competition law only polices the acquisition and misuse of market power, by prosecuting price-fixing, preventing mergers that reduce competition, and stopping anti-competitive conduct by dominant firms.
It is true that because competition lowers prices, an increase in competition can have an impact on inflation in certain situations. For example, a 14.7-per-cent decrease in cellphone plan prices contributed to lowering inflation in June, 2023. That decrease is partly attributable to the Competition Tribunal’s ruling that the Rogers-Shaw-Videotron deal would increase competition and lower prices.
If a lack of competition is responsible for rising grocery prices, then competition law might be able to help. But the evidence doesn’t support this.
In June, the Competition Bureau found that grocery chains’ gross margins on food products increased by one or two percentage points since 2017. And while high margins would be an indicator of market power, the bureau found that the grocery industry is a low-margin business. Modest increases to low margins cannot explain the double-digit food price inflation we have all experienced. Similarly, an August, 2023, Bank of Canada study found no support for the notion that inflation is driven by firms leveraging market power to increase prices through higher markups.
These findings are consistent with common sense. If grocery store chains enjoyed enough market power to drive prices higher, then they would have done so a long time ago. They would not have waited for the pandemic or the war in Ukraine.
Moreover, the government’s new measures threaten to harm competition by reducing the Competition Bureau’s ability to enforce the Competition Act.
Bill C-56′s centrepiece is a proposal to enable the bureau to obtain court orders compelling businesses to provide information it needs to conduct market studies. There’s no doubt that market studies can be useful. In 2007, an intervention by the bureau led to dental hygienists being authorized to practise independently from dentists.
But there are major downsides, too. Bill C-56 vests the power to order market studies with the industry minister. This reduces the bureau’s independence, and risks politicizing competition law enforcement.
Worse still, market studies will divert Competition Bureau resources away from its core mandate – enforcing the Competition Act. The bureau is already short of resources; a recent bread price-fixing fine was issued more than five years after the investigation started. Market studies will also cost businesses millions in fees and divert management time away from running businesses.
This is no mere theory. In the early 1980s, the Restrictive Trade Practices Commission spent five years looking into the petroleum industry. It heard from more than 200 witnesses during more than 200 days of hearings. The inquiry cost millions. Yet in the end, its three-volume report sank without a trace. Expect the same of any grocery inquiry.
Bill C-56 will also repeal the efficiencies defence, another long-standing bureau goal. As its critics claim, the efficiencies defence does allow a merger that will harm competition to proceed, but only if efficiency gains from the merger will be greater than, and will offset, the harm to competition.
To date, however, only three cases have turned on efficiencies. While the bureau lost two of them, it could probably have won both by filing better evidence. In any event, efficiencies are not relevant to the grocery chain consolidation the bureau complains about; the bureau did not challenge any of the mergers that led to this concentration.
So will Bill C-56 make groceries affordable again? In a word, no. Indeed, while the Competition Bureau did conclude that there is room for more competition in the grocery industry, its finding that margins are already low indicates that there is not much room for food prices to fall.