INDU Committee Report

Price discrimination is a marketing practice whereby a supplier of goods or services charges different prices to different customers (whether other businesses or final consumers) and these price differentials do not accurately reflect differences in costs of serving the different customers. Three conditions are necessary for a firm to be found to discriminate on the basis of price: (1) the firm must have market power to set prices (otherwise consumers can choose to purchase from a competing supplier); (2) the firm must be able to identify classes of consumers with different price sensitivities; and (3) there is limited opportunity for consumers to resell to each other (otherwise consumers would arbitrate these prices to the lower price offered).

Though price discrimination by definition means treating individuals or groups of consumers differently and may create an unlevel playing field when the product is an input into another product, it is not an inherently anticompetitive practice. It is often procompetitive to charge different prices to different consumers when there are different costs attached to serving them (in the same way as volume and quantity discounts imply different costs and are not anticompetitive in and of themselves). Price discrimination may also result in additional sales, for example, to children and seniors who would not otherwise purchase the product. To the extent that the consumption of the good or service increases as a result, economic efficiency and "the most good going to most people" equity considerations are thought to be promoted.

Professors VanDuzer and Paquet, supported by a number of examples, noted that price discrimination is commonplace. For instance, a bank that offers students no-fee banking services in order to gain their loyalty later on in their lives is practising price discrimination. Indeed, the Government of Canada’s White Paper on the Financial Services Sector, if implemented, will not only encourage but also make mandatory for banks to offer basic "no frills" bank accounts to the "poor."

Legal Treatment of Price Discrimination

Under section 50(1)(a) of the Competition Act, price discrimination is a criminal act that extends only to "articles" (thereby excluding services and leases) and to promotional allowances under section 51. These provisions were introduced in the 1930s in response to concerns of unfairness to small business, particularly in the grocery subsector, with the emergence of large retail discount and chain stores.

Professors VanDuzer and Paquet were critical of the price discrimination provision, describing it as rather blunt and ineffective:

The bottom line is that we felt that because the section was not designed to be an accurate tool to get at anticompetitive price discrimination, it was likely to have an effect in the marketplace of discouraging people from engaging in innovative pricing and discounting practices and therefore was not an appropriate provision in the Act. If we look at the enforcement of that provision, we’ll see that over the five-year period we looked at, there were very few complaints, which is rather odd, given how pervasive price discrimination is in the marketplace. There were on average only about twelve complaints a year ... [ Anthony VanDuzer, 14:15:35]

The Commissioner of Competition appears to agree, but at the same time seems reluctant to advocate any change in the Act that is not supported by the small business sector.

You will recall that when we discussed Bill C-20, we originally proposed repealing the price discrimination [ provision] of the Act. However, we have encountered significant opposition from the small business community and we feel it should not be repealed unless small business is on side for such a repeal. [ Konrad von Finckenstein, 9:9:15]

The Committee heard somewhat to the contrary from the Canadian Chamber of Commerce, a group that was not enthusiastic about the usefulness of Canada’s price discrimination provision:

The current price discrimination provision in paragraph 50(1)(a) of the Act does not in fact protect small and medium-sized businesses from discrimination and has served little useful purpose since it was enacted in 1935. [Paul Crampton, 53:15:45]

Given these critical comments, the Committee was not surprised to hear the following statements from some members of the legal community:

I make a very nice living advising people how to avoid committing the offence of price discrimination. … I’ve never come across a situation where I thought there was any economic harm except the fees that they were paying me. Any of these amendments will be a competition lawyer’s employment bill. They’re great for me, but I don’t think that these provisions are good for the economy. Price discrimination, discriminatory allowances … they do nothing beneficial for the economy except legal fees. [ James Musgrove, 46:10:45]

This statement attests to Professor VanDuzer’s claim that the Competition Bureau’s Price Discrimination Guidelines are only partly successful at dispelling the chilling effect of the provision on the business community. Moreover, many witnesses appearing before the Committee went much further in their criticism of the current provision:

If given my choice, I would delete the price discrimination provisions completely and just use abuse if someone is abusing a dominant position through price discrimination. … The price discrimination law … has not been terribly effective but that might be just as well. The Americans, in the Robinson-Patman Act, have been tied in knots sometimes by small buyers trying to get discounts to which they aren’t even particularly entitled through the cost justification provisions. But I don’t think we want to go down that road ... [ Tom Ross, 46:9:20]

Professor VanDuzer’s proposal, which was supported by many witnesses appearing before the Committee, is to shift price discrimination from the criminal to the civilly reviewable section of the Act, specifically as a type of abuse of dominance under section 79. This treatment would also be consistent with how other vertical behaviour is treated, notably refusal to deal (section 75) and tied selling (section 77).

The Committee concludes that the time is right for changes to the Competition Act and therefore finds that:

13. The Government of Canada, after consulting with stakeholders, in particular with representatives of small businesses, should consider repealing the price discrimination provisions (sections 50(1)(a) and 51) of the Competition Act and include that prohibition under the reviewable civil section, possibly to be made applicable to the abuse of dominant position provision (section 79). The Government of Canada should also give consideration to ensuring that both the person in question has "market power" and the practice in question would "lessen competition substantially." Consideration should also be given to expanding the coverage of the provision to govern all products, including articles and services, and all transactions, not just sales. Consideration should be given to introducing enforcement guidelines for price discrimination under the abuse of dominant position provision.