INDU Committee Report

Canada’s original competition law, passed in 1889 and entitled An Act for the Prevention and Suppression of Combinations Formed in Restraint of Trade, was the first of its kind anywhere in the world. The new law marked an end to the prevailing laissez-faire attitude as a result of public suspicion of the mushrooming trend towards mergers and trusts at the end of the nineteenth century. While weak at its inception, Canada’s competition law has been modernized and made more effective with each modest revision, of which there have been many in the past century. At this time, Canada can stand proud of its Competition Act; it is an effective law that balances the interests of consumers in obtaining high quality goods and services at competitive prices with the interests of the commercial actors in being free to forge and pursue their business plans and strategies unencumbered by government dictate.

The Competition Act is a well-crafted economic instrument designed to preserve and enhance the process of competition. It is a law of general application; it applies to all industries in equal measure (except those provided a parliamentary privilege) and puts the interests of no one competitor or class of competitor ahead of those of any other. By establishing a broad competition framework, thereby setting "the rules of the game;" by making the Competition Bureau’s enforcement guidelines widely available to the business community while fulfilling its advocacy role at many regulatory hearings, thereby making the rules known to all players; and by judiciously enforcing the Act’s provisions, so that the game is called according to the rules; Canada’s Competition Act and its enforcement agents have produced an economic environment in which non-compliance with the law is more the exception than the rule.

Canada’s original competition legislation was unquestionably born out of the public’s distate for the business combinations being formed at that time. However, most of these large-scale mergers were an organizational response to the innovations for products and processes that entailed vast economies of scale. A similar set of circumstances appears to be unfolding today. The source of change is again innovation, but this time it has less to do with cost advantages of scale and scope associated with new physical capital and more to do with creative advantages associated with the stock of knowledge (or "human capital"). Rather than one-time changes, followed by a period of exploiting size and scope, today’s knowledge-based economy is accompanied by a

process of constant change in which products, technologies and methods of production and distribution are always being upgraded and improved. As new business models are being formed in this innovative period, they are exerting new pressures on the business sector and are revealing new stresses in the competition policy framework.

The more traditional retailers seem hardest hit by "Big Box" retail formats based on "just in time" inventory and delivery systems and by the Internet, which sometimes circumvents the intermediary function altogether. Whether gasoline retailers, grocery suppliers or other small businesses, the smaller independents feel they are being squeezed out by the much larger vertically integrated competitors. As a result, they are openly questioning the effectiveness of the predatory pricing and abuse of dominant position provisions of the Act. Yet the newer information and telecommunications companies wishing to form strategic alliances, rather than attempting a full-blown merger that might entail a loss of focus and productivity, are challenged by conspiracy laws that were developed for an industrial economy at the turn of the last century. Somewhat analogously, manufacturers of complex products that require unusually extensive information and/or demonstration services to be provided by retailers to persuade prospective consumers of the product’s utility are inadvertently constrained in their pricing strategies by price maintenance laws conceived to combat manufacturer or distributor conspiracies.

This report responds to these concerns by advancing preliminary findings, suggesting directions for further work and consultation, for reform of selective but pertinent provisions of the Competition Act. Chapter 1 identifies key economic developments that are reshaping the commercial landscape at this time, while placing Canadian competition policy, both the law and its enforcement, in its proper context. Chapter 2 looks at the Act’s conspiracy provisions to determine, if needed, how best to modernize these to take into account the business sector’s increasing trend to forge strategic alliances and joint ventures. Chapters 3, 4 and 5 consider shifting several anticompetitive pricing provisions of the Act ¾  predatory pricing, vertical price maintenance, and price discrimination ¾  so that the reviewable civil section of the Act would apply to them rather than the criminal provisions. Improvements to the refusal to deal and delivered pricing provisions to avoid getting embroiled in private contractual disputes are also considered. Chapter 6 addresses the issues related to extending private enforcement of anticompetitive conduct applicable to the reviewable civil section of the Act. Chapter 7 ponders the Commissioner of Competition’s request for new powers to issue interim cease and desist orders and ways to improve the Competition Tribunal’s procedures. Chapter 8 reviews alternative ways of addressing the concentration of ownership in the newspaper industry, including through the possible modification of the Competition Act to include provisions for this single industry. Finally, the major conclusions and preliminary findings of the report are summarized.