Competition If Necessary: Balancing Policy & Consumer Welfare in Canadian Competition Law
The United States is threatening Canada with tariffs and other protectionist policies. In this environment, it is worth considering the role of competition in Canada’s response.
Competition law and policy is directed towards increasing consumer welfare through the supply of products and services at competitive prices. It is widely recognized that artificial restraints on competition reduces consumer welfare.
Tariffs are one example of an artificial restraint that reduces consumer welfare. However, such restraints are often relied on to support other policy objectives. There are a host of protectionist policies in Canada that protect various sectors of the economy including agriculture, telecommunications and broadcasting, financial services, transportation services, energy and pipelines. Support for these policies is based on other public policy objectives. In the case of agriculture, for example, quotas and price support programs results in higher consumer prices. Nonetheless, Canadians appear to accept the public interest in maintaining the domestic supply of agricultural products.
There also appears to be broad public support for restraints in other sectors of the economy including entry barriers in the supply of financial services, telecommunications and broadcasting, among others. In this respect, Canadians appear to recognize the public interest in ensuring these services are not overwhelmed by competition from foreign suppliers. Indeed, President Trump’s policies underscore the importance of not being overly reliant on the United States in various sectors of the economy.
In these circumstances, what is the role of competition law and policy? Recently, several commentators have suggested that eliminating inter-provincial trade barriers would increase competition and benefit consumers and the economy. What is little noticed or remarked upon is the undeniable fact Canadians support many of these restrictions. In Ontario, for example, the LCBO has a legal monopoly over the distribution and sale of alcohol and related products. But for its licensing and pricing policies, there would be more choice and lower prices. Other examples abound. They include licensing and other restraints restricting the supply of doctors, nurses, accountants, dentists and lawyers. Do Canadians support eliminating these protectionist policies? Reducing barriers somewhat, likely yes. Eliminating them completely, likely not. The irresistible conclusion is that Canadians want competition where necessary, but not necessarily competition.
Interestingly, Canadian competition law explicitly recognizes other policy objectives. For example, prior to the amendment of the Competition Act in 2010, Canada only prohibited price fixing and other cartel activities that unduly prevented or lessened competition, thereby carving out some agreements that would otherwise be prohibited. In 1957, the Supreme Court ruled that these agreements could not be justified to protect employment in an industry. In 1992, the court also held that economic considerations including the definition of product and geographic markets, the level of concentration or the number of participants in the industry and the market shares of the participants were relevant in assessing whether the agreement unduly prevented or lessened competition.
The Competition Act also imposes a substantiality requirement with respect to mergers and many anti-competitive practices, thereby recognizing that some mergers and anticompetitive practices do not substantially prevent or lessen competition. There are also provisions relating to agreements between competitors and joint ventures that do not raise competition law concerns.
What is the appropriate balance between policies that promote competition and policies that address other policy objectives? Unsurprisingly, there is no simple answer. All we can say is that better understanding the tradeoffs between competing objectives will help facilitate more nuanced and less costly protectionist measures.
That said, we think it unlikely that Canadians will seriously consider or accept radical changes in the complex web of economic arrangements at the heart of the Canadian experiment. Put another way, while competition has undeniable benefits, it is only one of the policy instruments that support what Canadians do and why we do it. On the other hand, we do consider thoughtful changes in competition policy that will improve the efficiency and adaptability of the economy and enhance our ability to ensure our independence as a nation.
