Is Canadian Competition Policy Fit For The Digital Age?

Opinion by Georgia Evans. This article is part of the Corporations and Competition, a series by Georgia Evans on Canadian Telecommunications policy.

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When corporations grow too large and powerful, many are inclined to say, “break them up.” Antitrust laws, aimed at curbing the power of monopolists by introducing competition into their sectors, have been all the rage when it comes to the GAFAM suite of Big Tech companies (Google, Apple, Facebook, Amazon, Microsoft) [1] [2]. The call to “break them up”, however, extends far beyond these global behemoths. As the saying goes, Canada is just a handful of oligopolies walking around in a trench-coat, so the call for more competition is growing on Canadian soil, too [3]. Bigness is indeed bad, and to curb the endless loop of companies reinforcing their political power through market power and vice versa, more needs to be done to improve competition.


This series has re-iterated a cardinal rule of economics, that when the market fails, the government should step in. Monopoly power is a classic case of market failure. We’ve looked at how various Canadian governments have addressed the digital divide, a key market failure in telecommunications, through funding programs. We’ve also seen how these funding programs can merely serve as band-aid solutions that do not address the root cause of our problem. With the existence of communications conglomerates in Canada signifying one part of our troubles, we must also consider whether our competition laws are fit for the digital age, so this article covers some further challenges with Canada’s Competition Act and our options going forward.


Antitrust in Canada


TL;DR, Canada does not have a strong history of antitrust enforcement and its Competition Act is ripe with issues.


Across the globe, big tech giants are facing more than 70 antitrust lawsuits and investigations [4]. Most of these initiatives are taking place off Canadian soil [5]. How could Canada successfully tackle antitrust in the digital economy when it can’t even stop anticompetitive behaviour in traditional markets? More importantly, why does Canada struggle to put an end to anticompetitive behaviour in the first place?


In the United States, the 1890 Sherman Act, 1914 Clayton Act, and Federal Trade Commission Act of 1914 are the federal anti-trust laws that have been used to prevent monopolization, anticompetitive behaviour and protect consumers from harm [6]. These Acts were introduced to combat monopolies in general-purpose sectors like rail, oil, and steel. To this day, discussions of antitrust are harkened back to the efforts of the early 1900s, such as when Standard Oil was ordered to break up into 34 distinct companies in 1911 [7]. As Canadians, we tend to expect the same progress in our systems as the United States, however, our competition policy has been as strong. Even now, the U.S. is taking more action by reviving its competition policy, with President Biden issuing an Executive Order on Promoting Competition that includes the information technology sector as a target [8]. Yet, there are two challenges related to competition policy that Canada and the U.S. share: (a) drawing the line between which practices causes harm and which improve efficiency is difficult, and (b) the ethos of competition policy has been entrenched in neoliberal thinking since the 1970s [9].


If you start at the very beginning, the purpose of the Competition Act as set out in s. 1.1 could be reformed, as its interpretation has influenced the poor implementation of many of the Act’s provisions [10]. As discussed previously in this series, mergers that cause harm to consumers are enabled through the efficiencies defence set out in s. 96, which ensures that mergers cannot be stopped if they create gains in efficiency (i.e., cost savings) greater than the harm created by the loss of competition. S. 96 has helped make the big, bigger, several times over. The flaws in Canadian competition law, however, do not stop with the efficiencies defence. When it comes to the Act’s economic objectives, more issues emerge through the abuse of dominance provisions in ss. 78 and 79, which outline prohibited anticompetitive actions [11]. The Tribunal can make an order to stop this behaviour, but these provisions have been successfully invoked less than a dozen times since the 1980s [12]. S. 79 does not provide for anticompetitive practices that substantially lessen competition to be subjected to an order because there needs to be proof of negative effects on competitors [13]. This doesn’t make sense as competitors are not the only parties impacted by anticompetitive behaviour, and considering that the whole purpose of the Act is to encourage competition, it would be beneficial to have all anti-competitive behaviours be within scope.


Moreover, companies that work collaboratively as a unit (like when colluding on cell phone plans) can constitute a shared monopoly, and together abuse their dominant position [14]. A group’s market share surpassing 60 per cent warrants examination into joint dominance [15], so where is competition investigation and enforcement in the communications industry? Well, when investigation and enforcement does occur through the Competition Bureau, there are hardly the tools to ensure that it is meaningful [16]. The Competition Bureau almost never wins merger challenges, and the monetary penalties for abuses of dominance is a meager ten million dollars [17]. Dominant firms on Canadian soil have revenues in the tens of billions of dollars – ten million dollars is hardly a deterrent. Recently, the Competition Bureau created a Digital Enforcement and Intelligence Branch, to act as an early-warning system for competition issues in digital and traditional economies, but given the Bureau’s history with enforcement, it is hard to believe that this will be enough.


Reform for the Digital Age


Interest in competition policy has no doubt increased over the past few years, and while there is relative agreement that it requires renewed attention from policymakers, the question is how? The debate on Canadian soil has recently been complemented by Sen. Howard Wetston’s public consultations, where he has invited comments on how the Competition Act could be reformed for the digital age [18]. He commissioned Professor Iacobucci from the University of Toronto to examine the state of competition policy and outline policy gaps and reform options for the digital age [19]. Professor Iacobucci’s report, Examining the Canadian Competition Act in the Digital Era, argues for incremental substantive changes to the Competition Act, stating that competition policy is not an appropriate tool for other social problems caused by big tech, like privacy and economic equality [20]. To address some of the problems in ss. 78 and 79, for example, he argues that the Act should clarify that an anti-competitive behaviour does not need only have a negative effect on a competitor to be subject to an order [21]. He, as well as the Commissioner of Competition Matthew Boswell, have advocated for increasing the monetary penalties for abusing dominance [22] [23]. Another option is scrapping the efficiencies defence. Canada is the only G7 country with such a provision, and since 2015 it has enabled four mergers where either the Competition Bureau or the courts have said that there will be anti-competitive effects like higher prices [24].


To return to basic economics, any competition policy that does not achieve meaningful competition – like low barriers to entry, low prices for consumers, product choice and innovation – needs to be fixed. Since digital markets exacerbate the problems with our current competition policy, these fixes need to come quickly. While updates can be made to aspects of the Competition Act like ss. 79 and 96, re-thinking its underlying values will be necessary in order for reform to be truly effective for the digital age. Currently, the Chicago School and its emphasis on efficiency gains dictates Canadian competition policy, eclipsing other values such as fairness and equality. That needs to change. Iacobucci, with skepticism, suggests that a reform to the purpose of the Act could be to promote competition as a means of promoting a fair and productive society [25]. Fairness is hard to operationalize, but it is not impossible. Embedding equality of opportunity or equality of distribution into the concepts and tools of competition law can be a starting point [26]. Without an overhaul of our competition policy, or even incremental reforms, Canada will be at a loss and Canadians will be harmed by the whims of oligopolists in traditional and digital markets

 

[1] Jules Bonnard & Jean-Phillippe Chognot, “Efforts to curb tech giants,” Tech Xplore, June 29, 2021, https://techxplore.com/news/2021-06-efforts-curb-tech-giants.html

[2] Diane Bartz, “’Pac-Man strategy’: Big Tech’s many small mergers draw more U.S. anti-trust scrutiny, Financial Post, September 15, 2021, https://financialpost.com/technology/big-techs-little-mergers-draw-more-u-s-antitrust-scrutiny

[3] Vass Bednar, “Opinion: Biden’s executive order on competition should be a wake-up call for Canada,” The Globe and Mail, July 14, 2021, https://www.theglobeandmail.com/business/commentary/article-bidens-executive-order-on-competition-should-be-a-wakeup-call-for/

[4] Josh Sisco, “Apple, Amazon, Google and Facebook Face at Least 70 Antitrust Probes, Cases,” The Information, 2021, July 15, https://www.theinformation.com/articles/apple-amazon-google-and-facebook-face-at-least-70-antitrust-probes-cases

[5] Vass Bednar, “Canada can no longer afford to be virtually lawless on Big Tech,” National Post, 2021, November 15, https://nationalpost.com/opinion/vass-bednar-canada-can-no-longer-afford-to-be-virtually-lawless-on-big-tech

[6] Ewan Halliday, “Justice Department vs Google: the Politics of Antitrust in the United States,” McGill International Review, 2021.

[7] Naomi R. Lamoreux, “The Problem of Bigness: From Standard Oil to Google,” Journal of Economic Perspectives, volume 33, number 3, 2019, pages 94-117.

[8] “Executive Order on Promoting Competition in the American Economy,” White House, 2021, July 09, https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/

[9] Naomi R. Lamoreux, “The Problem of Bigness: From Standard Oil to Google,”

[10] Edward M. Iacobucci, “Examining the Canadian Competition Act in the Digital Era, 2021, September 27, https://sencanada.ca/media/368377/examining-the-canadian-competition-act-in-the-digital-era-en-pdf.pdf

[11] Collins, P., Trebilcock, M. J., & Winter, R. A. & Iacobucci, E. M., The Law and Economics of Canadian Competition Policy, 2014, Toronto: University of Toronto Press.

[12] Ibid.

[13] Edward M. Iacobucci, “Examining the Canadian Competition Act in the Digital Era,” 2021, September 27, https://sencanada.ca/media/368377/examining-the-canadian-competition-act-in-the-digital-era-en-pdf.pdf

[14] Collins, P., Trebilcock, M. J., & Winter, R. A. & Iacobucci, E. M., The Law and Economics of Canadian Competition Policy,

[15] Ibid.

[16] Matthew Boswell, “Canada needs more competition,” Canadian Bar Association Competition Law Fall Conference, 2021, October 20, https://www.canada.ca/en/competition-bureau/news/2021/10/canada-needs-more-competition.html

[17] Ibid.

[18]. The Honourable Howard Wetston, “Re: Consultation Invitation – Examining the Canadian Competition Act in the Digital Era,” Senate of Canada, 2021.

[19] Ibid.

[20] Edward M. Iacobucci, “Examining the Canadian Competition Act in the Digital Era,”

[21] Ibid.

[22] Ibid.

[23] Matthew Boswell, “Canada needs more competition,”

[24] Ibid.

[25] Edward M. Iacobucci, “Examining the Canadian Competition Act in the Digital Era,” [26] Ioannis Lianos, “Competition Law as a Form of Social Regulation,” The Antitrust Bulletin, volume 65, issue 1, 2021, p. 3-86