Thank you very much, Mr. Chair.
Thank you to the committee for inviting me to speak today.
I write and teach about competition law, and I want to take my time to share some views about the relationship between competition law and small and medium-sized enterprises.
Let me begin by just quickly reviewing why I think competition law is a valuable policy tool for Canada and then relate it to small and medium-sized enterprises in particular.
Competition is valuable to society because it compels firms to provide consumers with quality products at competitive prices. These are prices that roughly reflect their costs. This bring about economic benefits because it ensures that consumers who value the product more than it costs to produce are able to buy it. This creates gains from trade.
Competition law promotes competition that, in turn, encourages these social benefits, so competition law promotes competition in a variety of ways, and many of you will be familiar with them. I'll just quickly highlight three and focus on the third.
The first is that it deters price-fixing, where competitors substitute co-operation for competition and agree to set a certain price. It deters anticompetitive mergers. If two firms decide to merge rather than compete with one another, it is something that competition law authorities will scrutinize. Third, it prevents dominant firms from hurting competition by seeking to exclude competitors or limit competition.
It's the third that I want to talk about in its relationship with SMEs. Competition law accepts that vigorous competition on the merits may exclude some competitors. They just may not be able to keep up with the competition in the market. This is not just acceptable but kind of an inevitable by-product of healthy competition between firms.
How do we think about SMEs fitting within this framework? Acts by dominant firms that harm competition by improperly excluding SMEs and, indeed, other kinds of competitors, lie squarely within the domain of competition policy.
In a case called Nielsen, as an example, there was a dominant firm that signed up both its customers and its suppliers to a series of exclusive contracts. These exclusive contracts made it impossible for an entrant that wanted to come into the market to come into the market. It couldn't get the inputs, and it didn't have anybody to sell to, because the dominant firm had signed everybody up to exclusive contracts. The competition tribunal ultimately ordered Nielsen to stop relying on these exclusive contracts. This was a means to seek to promote competition within that market. The contracts essentially foreclosed competition by a smaller rival.
Protecting competition can indeed protect competitors, but, incidentally, the purpose is to protect competition, not competitors. Conventional competition law, then, would not seek to promote the welfare of SMEs or other competitors as a goal unto itself. Acts by firms that hurt SMEs but reflect vigorous competition on the merits are not and ought not to be within the domain of competition law.
If a dominant firm just happens to have a better product than a competitor, an SME or not, and as a consequence the SME or the other competitor struggles to compete, that is competition on the merits and is not a competition law issue. Competition law is intended to focus on protecting competition, not competitors. This focus on competition can help SMEs but is not the purpose of competition law.
Let me just close by saying that the idea that competition law has this focus on protecting competition and not competitors does not mean that the law writ large should not be looking out for the interests of SMEs in a variety of different ways. SMEs may have importance to the fabric of Canadian society that go beyond their relationship with competition. If that's true, which it could well be—and this committee, I'm sure, will hear lots about this today—then there are other legal instruments that I think are better suited to promoting the welfare of SMEs as a goal in and of itself.
Just to take an obvious example, if we want to promote the welfare of SMEs, we could look to tax law to promote that with a lower tax rate on small and medium-sized enterprises and on other kinds of firms.
Competition law is only one policy tool. I think if we try to change competition law to seek to protect SMEs, there would be the risk that we end up sacrificing consumers in the form of higher prices in order to promote this goal. There are other instruments that would be better suited to meeting the goal of promoting the the welfare of SMEs, if that is, indeed, an objective of the government.
I will close there. I'll be happy to take questions as they come as this session unfolds.