The goals of competition policy are relatively uniform across developed economies: The promotion of domestic competition; the development of new ideas, new products and new enterprises; the promotion of efficiency in the resource-allocation sense; the development of manufacturing and service industries that can compete internationally. In addition to these economic objectives, governments and citizens frown upon monopolies or monopoly practices if they lead to an undue concentration of political power. Such power can lead to a concentration of wealth and influence in the hands of an elite.
Canada’s regulatory body is the Competition Bureau, whose activity is governed primarily by the Competition Act of 1986. This act replaced the Combines Investigation Act. The Competition Tribunal acts as an adjudication body, and is composed of judges and non- judicial members. This tribunal can issue orders on the maintenance of competition in the marketplace. Canada has had anti-combines legislation since 1889, and the act of 1986 is the most recent form of such legislation and policy. The Competition Act does not forbid monopolies, but it does rule as unlawful the abuse of monopoly power. Canada’s competition legislation is aimed at anti-competitive practices. Let us examine some of these proscribed policies.
Anti-competitive practices may either limit entry into a sector of the economy or force existing competitors out. In either case they lead to a reduction in competition.
- Mergers may turn competitive firms into a single organization with excessive market power. The customary justification for mergers is that they permit the merged firms to achieve scale economies that would otherwise be impossible. Such scale economies may in turn result in lower prices in the domestic or international market to the benefit of the consumer, but may alternatively reduce competition and result in higher prices. Equally important in this era of global competition is the impact of a merger on a firm’s ability to compete internationally. In a market with few suppliers mergers have the potential to reduce domestic competition.
- Cartels aim to restrict output and thereby increase profits. These formations are almost universally illegal in individual national economies.
- Price discrimination is another means of increasing prices. For example, if a concrete manufacturer makes their product available to large builders at a lower price than to small-scale builders – perhaps because the large builder has more bargaining power – then the small builder is at a competitive disadvantage in the construction business. If the small firm is forced out of the construction business as a consequence, then competition in this sector is reduced.
Predatory pricing is a practice that is aimed at driving out competition by artificially reducing the price of one product sold by a supplier.
Bid rigging is an illegal practice in which bidders (buyers) conspire to set prices in their own interest.
The Competition Act is enforced through the Competition Bureau in a variety of ways. Decisions on acceptable business practices are frequently reached through study and letters of agreement between the Bureau and businesses. In some cases, where laws appear to have been violated, criminal proceedings may follow.
Regulation, deregulation and privatization
The last three decades have witnessed a significant degree of privatization and deregulation in Canada, most notably in the transportation, communication and energy sectors. Modern deregulation in the US began with the passage of the Airline Deregulation Act of 1978, and was pursued with great energy under the Reagan administration in the eighties. The Economic Council of Canada produced an influential report in 1981, titled “Reforming Regulation,” on the impact of regulation and possible deregulation of specific sectors. The Economic Council proposed that regulation in some sectors was inhibiting competition, entry and innovation. As a consequence, the interests of the consumer were in danger of becoming secondary to the interests of the suppliers.
Telecommunications provision, in the era when the telephone was the main form of such communication, was traditionally viewed as a natural monopoly. The Canadian Radio and Telecommunications Commission (CRTC) regulated its rates. The industry has developed dramatically in the last two decades with the introduction of satellite-facilitated communication, the internet, multi-purpose cable networks, cell phones and service integration.
Trucking, historically, has been regulated by individual provinces. Entry was heavily controlled prior to the federal National Transportation Act of 1987, and subsequent legislation introduced by a number of provinces, have made for easier entry and a more competitive rate structure.
Deregulation of the airline industry in the US in the late seventies had a considerable influence on thinking and practice in Canada. The Economic Council report of 1981 recommended in favour of easier entry and greater fare competition. These policies were reflected in the 1987 National Transportation Act. Most economists are favourable to deregulation and freedom to enter, and the US experience indicated that cost reductions and increased efficiency could follow. In 1995 an agreement was reached between the US and Canada that provided full freedom for Canadian carriers to move passengers to any US city, and freedom for US carriers to do likewise, subject to a phase-in provision.
The National Energy Board regulates the development and transmission of oil and natural gas. But earlier powers of the Board, involving the regulation of product prices, were eliminated in 1986, and controls on oil exports were also eliminated.
Agriculture remains a highly controlled area of the economy. Supply ‘management’, which is really supply restriction, and therefore ‘price maintenance’, characterizes grain, dairy, poultry and other products. Management is primarily through provincial marketing boards.
“14.5 Regulation and Competition Policy” in Principles of Microeconomics by Douglas Curtis and Ian Irvine, LibreTexts is licensed under a Creative Commons Attribution-Non-Commercial-ShareAlike 4.0 International License.