The state of competition in Canada is easily summarized in a few words: lacklustre and getting worse.
A Competition Bureau report, released in mid-October, detailed what’s gone wrong over the past two decades. The findings mirror what Canadians see and feel every day as they face few options for basics such as groceries, banking, and telecom. The need for an overhaul of the Competition Act, which this space strongly supports, is now even more clear.
While the bureau’s report didn’t name names or cite specific sectors, the biggest problem the data showed was the rise of industry concentration. There are fewer competitors today in industries that didn’t have many competitors 20 years ago. And the number of industries with too few competitors has also increased.
Further, the bureau concluded “rank stability” has gone up across the economy: “This means the largest firms in industries face less of a challenge from smaller firms.” Meanwhile, profits and markups have risen, suggesting a lack of competition – which, no surprise, is common in industries in which concentration is high and it’s hard for an upstart to make a dent, and in which established firms more often than not maintain their position.
This is not how it’s supposed to work.
One of the root problems, as the Competition Bureau and others have said, is the Competition Act. It became law in 1986, when a belief in bigger is better reigned. The law favours consolidation. The balance needs to be recalibrated.
The federal Liberals a year ago launched a process to consider wide-ranging changes. Several were rushed ahead this September, including the end of the efficiencies defence as a trump card in favour of consolidation. The Liberals, NDP and Conservatives all agree on this measure.
This support across the political spectrum reflects how problems in the structure of the economy have become widely recognized, amid the dominance of large companies. The U.S. Federal Trade Commission, supported by numerous states, has launched legal actions against Google, Facebook and Amazon for allegedly wielding monopoly power.
The federal Liberals have said major changes to the Competition Act will be tabled in the coming months. The Conservatives have offered support. “There’s no question we need to reform the Competition Act to bring more choice and competition generally,” Conservative Leader Pierre Poilievre said this month. Mr. Poilievre’s comment came after the party called on the Liberals to block Royal Bank’s proposed takeover of HSBC Bank Canada. (This space has said the deal requires careful scrutiny.)
Among potential changes to competition rules, one important focus is the concept of a “substantial lessening or prevention of competition.” The onus under the current act rests with the Competition Bureau, to prove a merger or takeover would be bad for competition. That obligation should shift, in some cases at least, to companies proposing a deal. They should show why their deal is good for the country.
This can be addressed in part with what are called structural presumptions. The current act in fact prohibits a decision solely on “evidence of concentration or market share.” The bureau believes structural presumptions would simplify merger cases and argues legislators should decide on “defined thresholds.” This makes sense, given the highly concentrated nature of so many industries.
Another change could be made around the seemingly nebulous idea of “fair competition.” Ottawa’s recently proposed amendments would tighten rules on anti-competitive deals between two companies that aren’t competitors – such as a mall and a larger grocery store agreeing that no other grocer can set up shop there. More can be done to curtail such strategies that benefit those involved but hurt everyone else.
Then there’s the bigger picture.
Matthew Boswell, head of the Competition Bureau, in a speech this month called for a “whole of government” approach. He pointed to the many regulatory barriers outside the Competition Act or bureau’s purview, and to broad reforms in Australia that spurred productivity and economic gains.
Ottawa needs to seize the momentum for a modernized competition law. The bureau report is evidence of the reasons why. With bipartisan backing, the challenge now is to get the details right.