Evidence of meeting #129 for Industry, Science and Technology in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was merger.
A recording is available from Parliament.
12:10 p.m.
Conservative
12:10 p.m.
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
Thank you, Mr. Chair, and thank you to all the witnesses for appearing before the committee.
Professor Iacobucci, my questions are for you.
In your opening testimony, you mentioned that price-fixing cartels are hard to detect. I think it was Mr. Hatfield who spoke about the ordinary Canadian, perhaps a Canadian who is not an economist or a competition lawyer. In their minds, if a small number of firms have similarly priced products and increase their products at a similar rate, that's enough for them to have an intuition that perhaps there's a bit of price-fixing going on. Why is it not that simple?
12:10 p.m.
Professor and Toronto Stock Exchange Chair in Capital Markets, Faculty of Law, University of Toronto, As an Individual
It is not that simple.
There can be that intuition, but what you'd expect in vigorously competitive markets is for prices to move in parallel with one another. If I lower my price and want to gain market share from others, they're going to react. The competition will react to that cut in price to match my cut in price so they don't lose market share to one another.
What competition does is push prices closer to cost. One thing that could happen is costs could all vary at the same time, and if they all vary in similar ways, competitive markets will result in similar price movements. The observation of parallel behaviour is not sufficient to conclude that there's been price-fixing.
The other thing that gets very complicated and hard to deal with is that business people might recognize that there may be less than perfect competition. They might recognize that they don't want to be too aggressive on price. They could afford to be a bit aggressive on price, but they're worried there will be a response from another firm in the market and they'll match the cut in price. Then neither of them is going to be ahead. There's what's sometimes referred to as “conscious parallelism”. It's not collusion, it's not price fixing and they're not getting together. They're all just acting in their own economic interest, but it's resulting in less than perfect competition.
There are different possibilities that exist that make it difficult to observe parallel behaviour and infer any kind of price-fixing arrangement.
12:10 p.m.
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
We know that Bill C-352 would require the Competition Tribunal to make an order to dissolve or prohibit a merger if the result would be a combined market share of 30% to 60%, or reverse the burden to the merging parties to prove that the merger would not substantially prevent or lessen competition.
You spent a big chunk of your opening testimony talking about how market share or concentration is not necessarily competition. Did you want to expand on that a bit?
12:10 p.m.
Professor and Toronto Stock Exchange Chair in Capital Markets, Faculty of Law, University of Toronto, As an Individual
I think there's a disconnect. There's something known as the structure-conduct-performance paradigm. A certain kind of structure will lead to a certain kind of competitive conduct, which will lead to bad outcomes. If it's a concentrated market, it leads to less competition and bad outcomes.
What I think economists have realized over the years is that sometimes really competitive and vigorous competition causes the market structure to be more concentrated. If you have really tough competition, the weaker performers fall away. Then you can look at that and say there's a concentrated market; it can't be that competitive, when in fact it was competition that led to the concentrated market.
The direction is not always the same. A concentrated market is a reason to look further if you have a merger, to be sure. However, it's more complicated than thinking it all moves in one direction.
12:10 p.m.
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
If this bill is predominantly focused on market share, would you consider that an inherent flaw?
12:10 p.m.
Professor and Toronto Stock Exchange Chair in Capital Markets, Faculty of Law, University of Toronto, As an Individual
I think putting market share in the statute is a flaw. When considering mergers, for the bureau, enforcement agencies and indeed the tribunal to take market share seriously as a possible indicator of problems or even a suggestive indicator of problems is not a worry, but I would not want to see that in the act itself.
12:15 p.m.
Liberal
Iqwinder Gaheer Liberal Mississauga—Malton, ON
I'd like to ask the rest of the panel if they think adding market share to the bill is a flaw.
12:15 p.m.
Prof. Thomas Ross
I'll jump in quickly to say that I did speak to that. I feel, for the same reasons as Professor Iacobucci, that market shares are very weak indicators of market power. They're useful. They belong in guidelines but not the law. I'll just leave it there.
12:15 p.m.
Associate Professor and Vice-Dean Research, Civil Law Section, Faculty of Law, University of Ottawa, As an Individual
I share the opinion of my colleagues in economics on that. I think we have to be careful. It's not that market shares are not useful information. As to all the things that especially Professor Ross said about the complexity of determining what playground you're looking at, who's being bullied in the playground and where the problem is, they're a considerable issue. I don't want to understate that. However, I think trying to have these hard rules in the law makes it harder for the tribunal to engage in a nuanced, sophisticated analysis. The temptation is that the reversal of the burden of proof will be handy, but we have to be really careful about fixing these things in the law given how infrequently this law historically has been modified. That would be a real danger.
There are other things in the law where the amount, for example, is determined by regulations. That's the threshold for merger pre-notification. I don't know whether that's necessarily the right approach because I don't agree that market share is the right indicator, but you could cut the apple in half that way.
I'm sorry. I'm thinking in French.
June 10th, 2024 / 12:15 p.m.
Executive Director, Canadian Anti-Monopoly Project
Perhaps I can offer a counterpoint to that. Market share and concentration measures are imperfect measures, but when we get into the messy business of enforcing competition law, we need to balance the data we can have and the analysis we can do quickly with the realities of the market. That's the case even with existing competition law. Understanding them as an imperfect indicator, market shares and concentrations still point us frequently in the right direction of where we should be focusing enforcement resources.
The other thing is that the guidelines in Canada don't play the same role as in other jurisdictions. We are much more directive within our own law. I think putting market share statistics in the guidelines would be largely ineffective.
12:15 p.m.
Liberal
12:15 p.m.
Conservative
The Vice-Chair Conservative Rick Perkins
Go ahead, Mr. Hatfield. We'll finish up this round with you.
12:15 p.m.
Executive Director, OpenMedia
There's tremendous value in reversing the burden of proof in these kinds of situations. We're in a situation where somehow the rules are written such that the house always loses, the house in this case being the Competition Bureau. It's been so easy in many cases for businesses to counter the bureau's case. We need to make them do the work of showing that what they're proposing will not hurt Canadian consumers, or we'll see many more harms to Canadian consumers in the future from these deals.
12:15 p.m.
Conservative
The Vice-Chair Conservative Rick Perkins
Thank you very much.
Monsieur Garon, you have two and a half minutes.
12:15 p.m.
Bloc
Jean-Denis Garon Bloc Mirabel, QC
Thank you, Mr. Chair.
I'm going to take a second to tell Professor Quaid that thinking in French is fantastic. You have to keep doing it, especially in Ottawa.
I now turn to Mr. Iacobucci.
We've talked about the concept of structural presumption. As I understand it, some competition authorities may have a presumption against mergers and acquisitions. So, in their minds, companies that want to merge may be wrong by default.
This concept would be operationalized differently in many places. For example, in the U.S., competition authorities are often considered to have a pro-consumer presumption, but there is no quantified, quantifiable and very rigid test to operationalize it. As a result, the commissioner, or the commissioner's equivalent, has more latitude, the authorities have less to justify, and their decisions are less likely to be challenged in court and overruled.
In Canada, is there a way to make the structural presumption against mergers and acquisitions so that it's easier to protect the consumer, while not imposing a 65%, 60%, 58% or 57% test, which is too rigid for the commissioner?
12:15 p.m.
Professor and Toronto Stock Exchange Chair in Capital Markets, Faculty of Law, University of Toronto, As an Individual
I apologize; I'll answer in English.
This is an important question. To start at the beginning, we've been hearing that sometimes, as Mr. Bester raised, some of the contested mergers have not gone the commissioner's way. That is true, and I think there are some decisions there that I disagree with, but it is important to understand that the bureau has a lot of informal power when it comes to mergers, because the number of firms that are willing to go to litigation to resolve a dispute is relatively small. Mergers are often very time-sensitive, so there is a lot of clout there, and a lot of mergers over the years have been resolved informally. Many more mergers get resolved informally than formally. Thinking that we need structural presumptions to give the bureau more heft might be missing an important part of the picture, which is that the bureau has a fair amount of heft in its ability to say, “Slow down. We may take this to the tribunal and negotiate a settlement.” I think that's an important first part.
The other point that you raise, which is a good one, is that there have been times—and I can think of cases like Tervita—when the courts have been insufficiently attentive to the importance of competition. Professor Quaid spoke of judicial education. Maybe it's something like that. Mr. Bester and Professor Quaid spoke of possible institutional reform to make sure that adjudicators are quite sensitive to the importance of competition.
Those are just two of the other ways that we could be thinking about the importance of competition without adopting numerical tripwires.
12:20 p.m.
Conservative
The Vice-Chair Conservative Rick Perkins
Thank you, MP Garon.
We'll now go to MP Masse for two and a half minutes.
12:20 p.m.
NDP
Brian Masse NDP Windsor West, ON
I think Mr. Hatfield wants to make a comment, so I'll open with you, Mr. Hatfield, if you want to respond.
12:20 p.m.
Executive Director, OpenMedia
I just wanted to add that OpenMedia does not think condition-setting works well. For the Rogers-Shaw deal, many conditions were put on the deal by the government, and there wasn't a specific condition for bidding price increases. Rogers started cranking up prices almost immediately.
You could say that we need more conditions; there is some way of fixing this, but it turns out to be easy for companies to find a workaround for whatever conditions the bureau or the government has applied to them. There's really no better way of stopping competitive impact than preventing a merger.
12:20 p.m.
NDP
Brian Masse NDP Windsor West, ON
Mr. Hatfield, I'm not aware of any organizations that track mergers over five to 10 years later. Even when conditions are put in, I don't know whether consumer research or other types are capable of doing a more long-term analysis of the elimination of competition and its effects. We see that right away with Shaw-Rogers, but maybe you can highlight a bit of that. Is there anything out there we're missing in subsequent long-term follow-up?
12:20 p.m.
Executive Director, OpenMedia
Almost no one, including the bureau, has the resources to do that kind of tracking, and it's a huge issue. Five years is pretty long for a condition; many are shorter. In many cases, companies will say, “These five years are the cost we have to pay to do a deal, but after that, we'll do whatever we want.”
12:20 p.m.
NDP
Brian Masse NDP Windsor West, ON
I only have a minute left.
Quickly, Mr. Ross, as imperfect as this process is, it's what we have in front of us. This is a private member's bill. We can pretend all we want. We wanted the government to do something different with regard to taking a more comprehensive approach, but we have only two committee meetings and have amendments coming. Complaining about the democracy we have isn't really helping consumers, because as broken as this system is, it's better than the alternative, in my opinion.
To your point about guidelines specifically, with the limited time I have, can you touch again on why you believe guidelines would be a better option? At least that's a suggestion for what we can control. I can't control the other stuff, but I can control what's in front of me.
12:20 p.m.
Prof. Thomas Ross
Thank you for that.
It's quite an industry now for competition agencies around the world. After a law has been implemented, they have to come out with a bunch of guidelines to help explain to businesses how at least the authority plans to implement the law until courts tell it to do something differently. Guidelines can be extremely useful at providing guidance—the lawyers on the panel should maybe speak to this—to clients who are wondering whether their behaviour is appropriate and whether a merger is appropriate. Guidelines have an advantage: They can be constantly updated with new information and new techniques for, say, evaluating the effects of mergers as they come along. You can blend them into new guidelines. If we're introducing into law something as messy as a market definition and the associated market shares of concentration, given that we know how messy it is, my preference would be to put them in guidelines where they don't carry quite the same weight.
Cases won't be won or lost based on what a guideline says the market shares are or should be. However, that still provides a lot of guidance for firms when they come into the bureau to see whether the bureau is going to be nervous about a particular situation, and that can start a discussion. Then, if it is litigated, the focus can remain on the expected effects of the transaction.
I hope that's helpful.