Introduction to Oligopolies: Masked by the Disguise of Choice
Updated: Jun 16, 2021
Policy Brief by Georgia Evans. This piece is part of Corporations and Competition, a series by Georgia Evans on Canadian Telecommunications policy.
Major industries that impact the everyday lives of Canadians share one characteristic: few firms are in control. Loblaws, Metro, and Empire control the major grocery stores, the Big Five banks control the financial industry, Torstar and Postmedia control the news media, American social media giants influence our online experience, and the Big Three telecommunications providers control our connectivity [1]. The telecom oligopoly is notorious for its wide web of influence and the high internet and cell prices it bills to Canadians every month.
As connectivity has become more important in our lives, the issues caused by this oligopoly have become incredibly urgent. This series will explore the regulatory landscape surrounding the telecom oligopoly, why it has thrived, the problems it causes for Canadians, and how to move forward. First, this necessitates an understanding of what an oligopoly is.
Markets, the abstract place where economic activity occurs, largely take three forms. Competition is the poster child for a successful market – products are nearly indistinguishable, market forces set the price, and no firm is more powerful than the other. It is very easy for firms to enter and exit the industry. In theory, prices are lowest when there is competition because the consumer has a wide range of options from which they can choose [2]. Think restaurants in the downtown core of a city. On the opposite end of the spectrum is a monopoly. Monopolies are single firms that use their market power in their given industry to set the prices high and rake in massive profits. Monopolies have differentiated specialized products. There are huge barriers to entry given the massive success of the dominant monopoly in the industry that makes it virtually impossible for any other firm to compete [3].
Between perfect competition and monopolies lies the oligopoly. Oligopolies are very similar to monopolies but can mask themselves as being competitive through the disguise of consumer choice. Instead of one firm, there are few firms that produce all or most of the goods or services within a given industry. In Canada, the Big Three – Bell, Rogers, and Telus – operate almost all our telecommunications networks. The small number of powerful firms creates mutual interdependence: one firm’s actions influence its rivals and elicit a reaction. If one firm produces less so they can rake in more money through higher prices, they all do it [4]. The power of the oligopolists influences pricing behaviour, with prices being higher than in a perfectly competitive market but slightly lower than in a monopoly. In a monopoly, the price can be fixed at whatever the monopolist wants, with consumers left with no other option. By having a few more firms than a monopoly, the oligopolists still charge high prices, but their monopolistic behaviour is masked by the disguise of choice. Wealth is diverted from consumers to producers through these firms’ anti-competitive behaviours. This small number of firms also creates significant barriers to entry for other firms hoping to compete.
Oligopolies are a conundrum to regulators. The easiest anti-competitive behaviour of oligopolists that regulators can target is collusion, as it is expressly illegal. Collusion is when rival firms agree to fix the price in order to reduce output and increase profits [5]. In 2019, it was discovered that major grocery retailers and bread producers had colluded to fix the price of bread to be higher than it should have been, sparking a class-action lawsuit [6]. Despite this illegality, it appears to many as though collusion still occurs. For example, the Big Three currently all have the same deal: thirty gigabytes of data for eighty dollars a month. [7]
On the surface, these matching deals seem like collusion that regulators have failed to catch. As noted by the Competition Bureau, “firms who repeatedly compete in the same market can develop an unspoken understanding that each firm will respond cooperatively to the behaviour of the other firms.” [8] It’s clear that the understanding is there, but there are many forces at play that have sustained the Big Three’s market power for decades.
This series, Corporations and Competition in Canadian Telecommunications, is going to examine how competition policy in Canada conflicts with the Liberal government’s promise of affordable cellular and internet connections for all Canadians. It will look at the nature of competition policy in Canada and whether the Competition Bureau is properly equipped to promote competition in one of Canada’s most infamous oligopolies. It will then take a deep dive into the laws and regulations that have sustained the Big Three’s market power, as well as the unequal connectivity resulting from this power. It will explore the opportunities to promote competition and achieve affordability that was squandered: the Canadian Radio-television and Telecommunications Commission’s decisions on mandating access to wholesale facilities for Mobile Virtual Network Operators, and their decision on wholesale rates for Internet Service Providers. Next, it will discuss the Rogers-Shaw merger and what it means for the state of connectivity and competition in Canada. Finally, it will conclude with an exploration of avenues that players in the Canadian telecommunications landscape – governments, the private sector, and civil society – can take to encourage competition, protect consumers, and achieve meaningful connectivity.
Ishmael N. Daro, “Canada has an oligopoly problem – and we need to fix it,” THIS, November 30, 2018, https://this.org/2018/11/30/canada-has-an-oligopoly-problem-and-we-need-to-fix-it/
Edgar K. Browning and Mark A. Zupan, Microeconomics: Theory & Applications, 12th edition, (United States: John Wiley & Sons Ltd.): 42-105.
Ibid., 277-328
Ibid., 336-345
Thomas A. Pirano Jr., “Regulating Oligopoly Conduct under the Antitrust Laws,” Minnesota Law Review, vol. 89, no. 1, 2004: 9-70.
Canadian Press, “Class action over bread price fixing authorized by Canadian judge,” CBC News, December 20, 2019, https://www.cbc.ca/news/canada/montreal/class-action-bread-pricing-approved-quebec-1.5404365
Screen-captures of identical phone deals on Rogers, TELUS, and Bell Mobility (left-right) websites on May 25th, 2021.
Competition Bureau, “Competition Bureau statement regarding Bell’s acquisition of MTS,” Government of Canada, February 15 2017, https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/04200.html