Rogers outage another reason to get rid of Canada’s efficiencies defence in competition law

On the morning of July 8, Canadians woke up to the consequences of monopoly. Rogers’ nationwide wireless and wireline networks had gone down, which meant not only was a third of the country in the dark when it came to connectivity, but also core payment infrastructure relying on the same network was also down. The failure of the system highlights the critical need for resilience in key infrastructure in an economic environment that has prized efficiency above all else for decades. Canada’s competition law, enacted in 1986, is a clear example of this efficiency-focused policy-making. In fact, our competition law privileges mergers that reduce redundancies that might improve resilience in key areas of our economy, even if these mergers harm consumers in the process. Robin Shaban is a co-founder of the Canadian Anti-Monopoly Project and the co-founder and senior Economist of Vivic Research. Photograph courtesy of Robin Shaban The most infamous example of the efficiencies defence in practice is Superior Propane’s acquisition of ICG Propane in 1998. The merger was permitted because of the significant cost savings it would generate through cutting redundant propane-distribution infrastructure, despite creating monopolies in 16 communities across Canada and being estimated to increase the price of propane by about eight per cent. It is not guaranteed that the defence will allow the Roger-Shaw deal to proceed. But if the Competition Tribunal buys that the deal’s claimed efficiencies of $1-billion annually are believable, then it is very possible. There is no doubt that Rogers and Shaw will attempt to argue the defence, and reading between the lines of the Competition Bureau’s initial filings to the Competition Tribunal challenging the merger, they are gearing up for the parties to do just that. The efficiencies defence enables harmful mergers and also mergers that remove redundancies in critical infrastructure. When Rogers and Shaw talk about $1-billion in annual cost savings, that number is very likely comprised of these same redundancies. Reducing overlaps in systems can provide businesses with massive cost savings, but they may also leave critical networks less resilient to unpredictable events. In 2019, the Competition Bureau permitted CN’s acquisition of H&R Transport Limited. The bureau found that the deal was likely to significantly increase prices and reduce quality for refrigerated transport services in markets across Canada. Despite this finding, the deal was still permitted because of cost savings associated with the “elimination of overhead costs, the elimination of duplicative facilities, and the elimination of duplicative IT systems and software licenses.” But the bureau could not have predicted that, a year later, Canada’s pandemic response would require a quick, large-scale rollout of vaccines. While supply issues are often credited with precipitating the slow rollout of vaccines relative to international peers, how much more quickly could we have gotten vaccines into the arms of Canadians if we had additional capacity in our refrigerated transportation networks? Keldon Bester is a co-founder of the Canadian Anti-Monopoly Project, a fellow at the Centre for International Governance Innovation, and an independent researcher and consultant. Photograph courtesy of Keldon Bester A core problem with Canada's competition legislation is its steadily growing fixation with the promotion of efficiencies and cost savings as the sole goal of competition. Our competition law does this to the detriment of the other economic and even social factors that make our economy work for the benefit of all Canadians, not just steadily consolidating capital. As we enter an era of greater instability, we cannot afford to maintain our 20th century view of competition and efficiency. We need to rethink the role of efficiency in Canada and what benefits it ought to bring to the country as a whole. In his book When More Is Not Better: Overcoming America's Obsession with Economic Efficiency, Roger Martin provides advice relevant in the Canadian context: “rather than striving singularly for ever more efficiency, we need to strive for a balance between efficiency and a second feature: resilience.” We need competition laws that enable a greater number of diverse competitors to provide services in our markets, and provide redundancies in the infrastructure underlying our daily life. When key networks are monopolized, our economy becomes more fragile as private interests retire redundant infrastructure with impunity. We must also keep in mind the role of public provision in providing competition in key services. Conventional wisdom suggests that public provision and competition are antithetical to each other—that publicly owned and operated services are inferior and not cost-effective. But today, as key sectors are dominated by a select few private enterprises, we can see that private provision is not guaranteed to lead to better prices or service. Canadians should revisit the role of public enterprise in our economy. Especially where barriers to entry are high and private efforts to promote competition have failed, the public sector may have a role to play as an effective competitor. Efficiency is not the sole goal of competition, and it is within our grasp to move away from the 20th century thinking that has left our economy monopolized and less resilient to the changes brought about by our increasingly unpredictable world. One of the current stated purposes of Canada’s Competition Act is promoting the adaptability of our economy. In light of the review of the act announced by the government, we would benefit from a rediscovery of the role of adaptability in protecting Canadians from that unpredictability. Robin Shaban is a co-founder of the Canadian Anti-Monopoly Project and the co-founder and senior economist of Vivic Research. Keldon Bester is a co-founder of the Canadian Anti-Monopoly Project, a fellow at the Centre for International Governance Innovation, and an independent researcher and consultant. The Hill Times

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Rogers outage another reason to get rid of Canada’s efficiencies defence in competition law

The failure of the system highlights the critical need for resilience in key infrastructure in an economic environment that has prized efficiency above all else for decades.

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