(OTTAWA) Canadian laws underestimate the harm to competition from corporate mergers while overstating the benefits, according to a new study from the Center for International Governance Innovation (CIGI).
Posted at 12:11 p.m.
According to the report’s author, Keldon Bester, legal loopholes have not been able to prevent very large companies from making the kind of acquisition “that kills the threat of competition and maintains their dominance”.
Mr. Bester adds that Canada lags behind other countries such as the United States in modernizing these laws.
He likens existing Canadian laws to broken brakes. “Our laws are like the brakes of a car going down a hill. We know we’re taking it down, but we’d like to take it down slower,” he said.
Mr. Bester deplores Canada’s inaction. The permissiveness of the laws is worrying in a context where the digital economy is growing, which brings its own challenges to overcome.
Business mergers must be approved by Canada’s Competition Bureau, which judges whether or not a transaction may harm competition.
Since the Competition Act came into force in 1986, authorities have challenged only 18 mergers. Even more alarming, Judge Bester, is that the Bureau has never won in court.
A January poll by Ipsos suggested that Canadians were worried about the situation.
Thus, 88% of respondents wanted more competition, because big companies too easily take advantage of Canadians. A similar proportion of respondents believe that greater competition gives consumers better choice and lower prices.
The survey was conducted online from January 14-17 among 1,001 Canadians aged 18 and older. The accuracy of Ipsos non-probability polls is measured by a credibility interval. The credibility interval for this poll is 3.5 percentage points, in 19 cases out of 20.
The CIGI report points out that the value of a transaction is not among the criteria that compel companies to notify the Commissioner of Competition.
In the United States, a merger must be reported to the Federal Trade Commission if the value of the transaction exceeds a certain threshold. Earlier this year, the commission and the Justice Department announced an investigation aimed at modernizing merger guidelines to “better detect and prevent anti-competitive transactions.”
In Canada, the bar is high for the Competition Bureau to intervene, underlines Mr. Bester who adds that the law obliges the authorities to consider the gains in efficiency which would result from a merger. These gains must outweigh and neutralize the effects of any lessening of competition.
The author believes that there is also a bias against the idea of blocking a merger.
Thus the law favors negotiations aimed at including concessions or solutions to competition problems. These remedies will not completely correct the problems associated with the reduction of competition resulting from a merger, the report reads.
Modifications
In his report, Mr. Bester proposes changes to Canadian laws.
Among other things, he recommends extending the range of transactions that the Competition Bureau can examine, increasing the period during which it can block an acquisition and modifying the criteria for blocking a merger.
Telecommunications giant Rogers’ bid to swallow rival Shaw, a $26 billion deal, is arguably the biggest merger in the country right now.
According to Mr. Bester, if Canadian laws were stricter, the transaction between Rogers and Shaw would have been “nipped in the bud” due to the lack of competition in the telecommunications sector in the country.
“If our laws were stronger, this transaction would not even have been proposed,” he says.
The Competition Bureau is trying to prevent this transaction “in order to protect Canadians from higher prices, reduced quality of service and loss of choice, particularly with respect to wireless services”.
Rogers and Shaw are expected to appear in November before the Competition Tribunal to defend the transaction.
The most recent amendments to the Competition Act date back to June. The government then increased fines and maximum penalties for those who break the law, banned wage-fixing and no-poaching agreements between employers, and clarified that incomplete price disclosure — partial pricing — is a deceptive business practice.