At Odds: Efficiency vs Fairness in Canadian Competition Policy
Opinion by Georgia Evans. This piece is part of the Corporations and Competition, a series by Georgia Evans on Canadian Telecommunications policy.
From the 1950s to the 1980s, neo-liberalism spread from the fringes to the mainstream of political processes and institutions in North America. Infamously, Ronald Reagan and Margaret Thatcher catapulted the globe into the neoliberal era through a suite of policies like tax cuts and mass privatization. Neoliberalism took a central tenet of liberalism – the idea that natural market forces lead to efficient economic outcomes that maximize welfare – and perverted it by applying ‘rational’ economic analyses to every domain of life in the hopes of achieving efficiency [1]. Efficiency is measured in terms of growth, cost savings, and profits. Neo-liberalism is present in every institution across North America and is a large contributor to the societal problems – extreme income inequality, the climate crisis, and inflated police budgets, among others – that we are confronting today because of its prioritization of efficiency above all else.
But the devil is in the details. Even the seemingly mundane corners of policy – like competition policy – are afflicted by neo-liberalism, making them no longer fit for purpose in the 21st century [2]. Our burgeoning societal values of fairness, equality, and equity are at conflict with the neoliberal value of economic efficiency above all else, and this conflict is realized in competition policy.
Competition policy encompasses the laws, regulations, law enforcement tools and processes that influence and dictate the competitive behaviour among businesses [3]. The Competition Act is the central legislation of Canadian competition policy, with the mandate to maintain and encourage competition “in order to promote the efficiency and adaptability of the Canadian economy...”, expand opportunities in foreign markets, understand the role of foreign competition domestically, ensure small businesses have equitable access to the market, and provide consumers with competitive prices and product choices [4]. The Competition Bureau is the law enforcement agency that makes sure businesses are compliant with the Competition Act (“Act”). The first priority of the Act, promoting efficiency, is demonstrative of its neoliberal underpinnings and impacts the effectiveness with which the Competition Bureau deals with anti-competitive behaviour.
The Organization for Economic Cooperation and Development (OECD) defines the objective of competition policy as “to enhance consumer welfare... lead[ing] to lower prices for consumers, more entry and new investment, enhanced product variety and quality, and more innovation” [5]. These qualities are almost all missing from the Canadian telecommunications industry. Competition policy, by the OECD’s definition, should be designed to promote fairness, like equal access and low prices for essential goods and services. The Act and the Competition Bureau, however, are products of neoliberalism that enable oligopolies anti-competitive behaviour, all in the name of efficient economic growth.
Part of the Competition Bureau’s mandate is to review mergers – past and future – to determine if they will harm or have harmed competition and stop mergers through s. 92 [6]. S.93 designates the factors to be considered regarding competition while evaluating a merger, such as the extent of foreign competition, how likely acceptable substitutes to the merging parties’ products will be available, barriers to entry, innovation, and so on [7].
According to Robin Shaban, the Principal Economist and Co-Founder of Vivic Research and PhD candidate at Carleton University, s. 96 of the Act is the most controversial and clear example of how its prioritization of efficiency conflicts with fairness and equitable outcomes [8].
S. 96 states that a merger cannot be stopped if it creates gains in efficiency greater than and that will offset a loss in competition [9]. The gains in efficiency are measured by cost savings that must come from the merger, and the competitive harm is measured by the loss in output from the increase in price [10]. For goods that are essential, an increase in price will not result in a large loss of output because people are willing to pay significant amounts for them.
For example, cell and internet services are essential because we must be connected in order to access other essential services, work, learn, and communicate. People are willing to pay hundreds of dollars just to be connected, so the lost output of a price increase in this industry would be small. The cost savings of merging two telecommunications companies are likely to be much higher than the lost output, because the companies can cut costs on physical capital and labour, and thus the Competition Bureau would not stop the merger from being completed. The odds of the Competition Bureau putting an end to the Rogers-Shaw merger, therefore, are not looking good (but more on that later in this series).
While s. 96 enables so-called efficiency, it hurts people and conflicts with the values of fairness, equality, and equity that we have come to cherish. Mergers result in lost jobs because the merged company can fire ‘redundant’ employees. In the United States, when T-Mobile acquired Sprint mobile, five thousand people were fired [11]. When companies merge, there is one less player in the game. In an already small playing field, the consolidation of market power enables firms to increase prices. When Bell acquired Manitoba Telecom Services, customers’ prices rose, because Bell could do that with the increased market power [12].
The government has a mandate to achieve lower prices for Canadians’ cell and internet bills [13]. This goal is completely contradictory to the underlying neo-liberal ideology of the Competition Act [14]. The Competition Act enables companies to grow, acquire competitors, and grow some more. The metrics used by the Bureau to measure efficiency and competitive harm enable serious anti-competitive behaviour by big players. Time and time again, companies merge, prices rises, and there are no fair outcomes. The Commissioner of Competition has even said that “the maximum penalties for anti-competitive behaviour […] lack the teeth necessary to deter anti-competitive behaviour” [15]. Until the Act is amended, firms will continue to be able to act anti-competitively and people will pay the price.
Michel Foucault, 2008, The Birth of Biopolitics: Lectures at the Collège de France, 1978-1979, Edited by Michel Senellart and Arnold I. Davidson, (New York: Palgrave Macmillan), 27-73, 216-237, 239-265.
Robin Shaban (Principal Economist and Co-Founder at Vivic Research), in conversation with Georgia Evans, May 26, 2021.
Vass Bednar & Robin Shaban, “The State of Competition Policy in Canada: Towards an Agenda for Reform in a Digital Era,” in Platform Governance, McGill Centre for Media, Technology and Democracy, April 2021, p. 11.
Competition Act, R.S.C., 1985, c. C-34, s.1.1
OECD, “Chapter 4: Competition Policy” in Policy Framework for Investment, 2021, https://www.oecd.org/investment/toolkit/policyareas/competition/Competition%20Policy%20Guidance,%20Thomsen.pdf
Government of Canada, “The Competition Bureau,” The Competition Bureau, 2015, https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03336.html and Competition Act, R.S.C., 1985, c. C-34, s. 92.
Competition Act, R.S.C., 1985, c. C-34, s.93.
Robin Shaban (Principal Economist and Co-Founder at Vivic Research), in conversation with Georgia Evans, May 26, 2021.
Competition Act, R.S.C., 1985, c. C-34, s. 96.
Robin Shaban (Principal Economist and Co-Founder at Vivic Research), in conversation with Georgia Evans, May 26, 2021.
Iain Morris, “Despite pledge, T-Mobile has cut 5K jobs since Sprint merger,” Light Reading, March 01, 2021, https://www.lightreading.com/aiautomation/despite-pledge-t-mobile-has-cut-5k-jobs-since-sprint-merger/d/d-id/767735
Cameron Maclean, “Bell MTS customers see prices rise for most services,” CBC News, September 29, 2017, https://www.cbc.ca/news/canada/manitoba/bell-mts-price-increase-1.4314116
Prime Minister of Canada Justin Trudeau, “Minister of Innovation, Science and Industry Mandate Letter,” Office of the Prime Minister, 2019, https://pm.gc.ca/en/mandate-letters/2019/12/13/minister-innovation-science-and-industry-mandate-letter
Robin Shaban (Principal Economist and Co-Founder at Vivic Research), in conversation with Georgia Evans, May 26, 2021.
“Highlights from the Competition Bureau’s Data Forum,” Competition Bureau, August 30, 2019, https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04492.html