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A Competition Bureau officer visits a gas station in Canada.Handout

Steven Globerman is a senior fellow at the Fraser Institute.

There’s been a lot of talk about competition in Canada lately.

The Competition Bureau, the federal law enforcement agency that regulates markets in Canada, tried twice to block Rogers Communication Inc.’s $20-billion takeover of Shaw Communications Inc. – part of a highly public fight the bureau has waged over the past two years.

Then there’s the Royal Bank of Canada’s proposal to buy HSBC Bank Canada for a reported $13.5-billion, which, according to many observers, the Competition Bureau will likely challenge as well.

These two recent high-profile mergers in telecommunications and banking should raise questions about the role and focus of the Competition Bureau, an agency most Canadians know nothing about, and how they relate to competition policy in Canada more generally.

The Competition Bureau has long complained about the “efficiency defence,” which allows companies to proceed with mergers that will reduce competition yet produce efficiency gains that outweigh those anti-competitive effects. But this is misguided. Rather than target the efficiency defence, the bureau should target the real enemy of competition – that is, government regulations that amount to barriers to entry for various markets.

Matthew Boswell, current head of the Competition Bureau, wants to essentially eliminate the efficiency defence in its current form – so the agency (or any other competition policy authority) considers any prospective efficiency improvements as just one factor when evaluating mergers and not necessarily a determining factor.

If this happens and Mr. Boswell gets his way, what will it mean for future prospective mergers in Canada?

In short, it will introduce more uncertainty into the merger review process because the weight given to potential efficiency improvements will likely vary depending on the merger. It may also vary based on the background and priorities of specific regulators including members of the Competition Bureau. And this added uncertainty might discourage corporate reorganizations that would ultimately improve the productivity performance of the economy and potentially the living standards of Canadians across the county.

If more competition is the goal, reformers such as Mr. Boswell should look at legal and regulatory barriers, particularly barriers to entry by foreign-owned firms across multiple industries, including telecom and banking, that discourage competition. Eliminating barriers to entry would help ensure that any cost savings associated with merger-related efficiency gains are passed through to consumers in the form of lower prices, improved product quality or both.

Unfortunately, governments in Canada have implemented numerous laws and regulations that stifle the competitive entry of both foreign and domestically owned firms into a range of Canadian industries. A recent study published by the Fraser Institute estimates that approximately 22 per cent of Canada’s economy (including telecommunications and air transportation) is protected to a substantial degree from competition by government-imposed barriers to entry.

Clearly, Mr. Boswell should know that any serious discussion about how to promote a more competitive Canadian economy should include eliminating laws and regulations that protect incumbent producers from would-be competitors. And ironically, such an initiative would address the Competition Bureau’s gripe with the efficiency defence.

By making it easier for new entrants to break into the market, regulators would introduce a degree of competition that offsets the supposed anti-competitive effects of large mergers, reducing the relevance of prospective efficiencies.

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