Business competition in Canada has declined over the last 20 years, watchdog report finds

Competition across Canadian businesses has declined over the past two decades as industries have become more concentrated and less dynamic, the country’s competition watchdog warned in its latest effort to kickstart competitive forces and modernize corporate laws.

Canada’s most concentrated industries have become less efficient and have increased pricing markups as the number of rivals in their markets has declined, according to a report published Thursday morning by the Competition Bureau, an independent law enforcement agency that promotes competition in Canada.

The report stops short of offering a cure, and does not identify particular industries or the competitive challenges in each. The bureau said the study is not intended to motivate any enforcement of the Competition Act but rather to provide an overview of Canada’s competitive landscape.

The study is based on Statistics Canada data from 2000 to 2020 from all companies that file taxes in the country, and included an analysis of balance sheets, payroll and employment data. It does not account for products bought by Canadians from foreign firms.

Matthew Boswell, head of the Competition Bureau, has spearheaded efforts to modernize Canada’s competition law to meet the needs of today’s global digital economy. He contends that Canada’s policies lag far behind those of its peers in Europe and the U.S.

“The reality is that Canada does not place enough importance on competition in the conduct of its affairs. And our performance on public restraints on competition is poor,” he said in a speech given to a competition conference on Oct. 5.

“Our findings are quite striking and provide further support for a significant course correction in Canada,” Mr. Boswell said, referencing the report.

Since 2000, market leaders have consolidated their positions at the top of their industries, with the number of new entrants declining, suggesting industries have become less dynamic, the bureau found.

Meanwhile, economies of scale declined, suggesting that large companies have become less efficient over time, according to the bureau. Profits and markups have increased across the board, and at a faster rate in industries where they are already high.

“None of these trends are positive for Canadian competitive intensity” said Alexa Gendron-O’Donnell, associate deputy commissioner of the Competition Bureau, in a press briefing Thursday morning.

When competitive intensity drops, businesses are less likely to work to gain a competitive advantage over rivals by innovating or lowering prices, the report said.

In early October, Bank of Canada deputy governor Nicolas Vincent warned that Canadian companies were continuing to raise prices more frequently than before the pandemic, and that this behaviour could make it more difficult to get inflation under control.

Jennifer Quaid, a law professor at the University of Ottawa, called the results of the study unsurprising, but said it provides evidence of the competitive weaknesses in Canada.

“You won’t be able to rely on it as ‘proof’ of specific antitrust problems, but it does give a flavour for what is happening in Canada’s economy,” Dr. Quaid said.

Certain industries in Canada are frequently criticized for being highly concentrated, including airlines, financial services, grocery chains and telecommunications companies.

Competition benefits consumers by lowering prices, increasing choice and improving quality.

The government has recently prioritized updating the Competition Act as Canadians struggle with the high cost of living for a number of household expenses, from groceries and gas to mortgage payments.

Last fall, Ottawa promised to overhaul Canada’s four-decade-old competition regulations and improve affordability amid a cost-of-living crisis, with a goal of closing regulatory loopholes and adjusting the penalty structure to aid enforcement.

In September, the government published the results of a consultation on Canada’s competition framework, showing that stakeholders generally saw the act as ineffective at preventing monopolies and found enforcement efforts to be lacklustre.

A few days later, the Liberals tabled Bill-C-56, introducing three changes to the Competition Act. This included eliminating the efficiencies defence, a controversial legal tool that explicitly allows mergers that result in a prevention or lessening of competition if those losses are outweighed by gains in efficiency.

The legislative amendments would also give the bureau more power to compel companies to provide information for market studies, and to target “collaborations” that stifle competition – for instance, lease conditions that prevent competitors from opening nearby.

The amendments have drawn ire from some within Canada’s business community, who suggest they are politically motivated, and could introduce uncertainty among Canadian companies or could scare off those thinking of moving here.

Others have suggested the Competition Bureau should shift its attention to regulatory barriers that prevent foreign-owned companies from entering some Canadian industries, such as telecom and banking.

Matthew Holmes, senior vice-president of policy and government relations at the Canadian Chamber of Commerce, said the report confirms that doing business is getting harder in Canada. But he said an interventionist approach – where the Competition Bureau challenges specific mergers and industries – is “very counterproductive.”

Recently, the Competition Bureau fought Rogers Communications Inc.’s $20-billion acquisition of Shaw Communications Inc. in merger court, a high-profile case that it eventually lost. The Competition Tribunal ruled the bureau’s arguments were “divorced from reality” and “unnecessarily contentious,” and ordered it to pay Rogers $13-million in legal fees.

Julie Soloway, partner and co-chair of the Competition, Antitrust & Foreign Investment Group at Blake, Cassels & Graydon LLP, said the government should consider economic policy in areas such as tax burdens, fiscal spending, regulation and supply management if it wants to improve competition, in addition to changes to the Competition Act.

In July, the Federal Trade Commission in the United States issued its own new draft of merger guidelines, warning about deals that increase the risk of co-ordination between companies in highly concentrated markets.

U.S. federal authorities are currently pursuing aggressive antitrust cases against several big tech firms. The Department of Justice launched its antitrust case against Alphabet Inc.’s Google search engine. It’s the first major trial against big tech in the U.S. since the 1990s. Soon, the Federal Trade Commission will fight a case against Meta and Amazon over other alleged monopolistic behaviour.

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