Opening Remarks by André Lafond, Deputy Commissioner of Competition

House of Commons Standing Committee on Canadian Heritage
Ottawa

March 30, 2000

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I. Introduction

• Good morning Mr. Chairman and committee members. I am pleased to have the opportunity to appear before your Committee today to provide you with background information regarding the Competition Act and the mandate of the Competition Bureau.
• My intent is to briefly describe the purpose of the Competition Act and the role of the Commissioner of Competition and the Competition Bureau. I would then like to provide you with a brief overview of our approach in analysing markets where allegations of abuse of dominant position have been made. Finally, I will briefly discuss some possible issues regarding competition policy and the Canadian book selling industry.

II. The Competition Act

• The Competition Act ("the Act") is a federal statute whose purpose is to maintain and encourage competition in Canada. It does so by prohibiting certain anti-competitive business practices which interfere with the competitive process.
• These provisions of the Act are not for the protection of individual competitors in the market place. Rather, they are designed to promote competition in order to provide consumers with the lowest prices, the greatest product choices and the highest levels of product quality.
• The Competition Act is a law of general application covering all unregulated business activity. As a framework law, the Competition Act maintains a clear and targeted focus, and does not deal with other public policy issues such as nationality of ownership, employment levels or regional economic disparities.

III. The Competition Bureau

• The statutory responsibility for the administration and enforcement of the Competition Act resides with the Commissioner of Competition. The Competition Bureau (the "Bureau"), which is part of Industry Canada, provides the Commissioner with the resources and expertise necessary to fulfill his statutory mandate.
• The role of the Competition Bureau under the Act is investigative.
• When we believe that a particular practice contravenes the Act, we encourage businesses to alter their behaviour to eliminate the source of concern. However, the Bureau has no statutory authority to decide the law, control prices, or directly compel businesses to alter any particular type of conduct or policy.
• As an enforcement organization, the Bureau's role is to investigate potentially anti-competitive conduct, and, where appropriate, bring such matters to the appropriate judicial body. Under the criminal provisions of the Act, the Bureau must apply to the Attorney General to have cases taken to the courts for action. Under the civil provisions of the Act, the Bureau must establish before the Competition Tribunal that a contravention has occurred in order for the Tribunal to take remedial action.
• In order for action to be taken against anti-competitive conduct, it must be factually demonstrated that the conduct meets the tests and requirements outlined in the relevant provisions of the Act. It is necessary to factually establish that the practice has or is likely to have the effect of substantially or unduly lessening competition in the relevant market.

IV. The Abuse of Dominant Position

• The provisions of the Act apply to a broad range of business practices including abuses of a dominant market position, anti-competitive mergers, conspiracies to fix or maintain prices, deceptive telemarketing and other activities as defined in the Act.
• Section 79 of the Act is designed to remedy situations where one or more firms are using a position of dominance to substantially lessen or prevent competition. It should be noted that obtaining market dominance through a legitimate competitive process does not contravene the law. Concerns arise when this market dominance is being abused to the detriment of competition.
• Before a remedial order may be obtained under this section, three essential elements must be found to exists. These three elements are:
  
  
  • one or more firms substantially or completely control a relevant market;
  • the dominant firm or firms have engaged in a practice of anti-competitive acts; and,
  • the practice has prevented or lessened, or is likely to prevent or lessen, competition substantially in a market.
    
• Where the Tribunal concludes that a company has abused its dominant position, it may prohibit the conduct in question, or make any other order it deems necessary to address its concerns.

V. Market Power

• With respect to the element of "control", the Tribunal has determined that this term is synonymous with market power. The most straight forward example of market power is the ability to profitably raise prices above competitive levels for a considerable period of time.
• It is sometimes difficult to measure market power directly. Consequently, the Bureau collects evidence and assess a number of qualitative and quantitative factors. However, one of the key factors on which the Bureau places great emphasis is market share. All other things being equal, the higher the market share held by a firm, the greater likelihood it will possess market power.
• There are no hard and fast rules as to the relationship between market share and dominance. However, the Bureau's general approach to evaluating allegations of abuse of dominance is as follows:
  
  
  • A market share of less than 35% will generally not give rise to concerns of market power or dominance;
  • A market share of over 35% will generally prompt further examination;
  • A market share greater than 50% in the case of a single firm will prima facie be considered dominant.

VI. Possible Issues Regarding Competition Policy and the Canadian Book Selling Industry

• I would like to spend a few moments addressing some possible issues regarding competition policy and the Canadian book selling industry .
• The Canadian market for book sales in Canada is both diverse and dynamic. In defining the book retail market, the Bureau would generally consider the sale of trade books (i.e. mass market paper backs and hard covers) normally sold through traditional book stores, book superstores and the Internet. Niche players, who only offer a limited number of books, are not considered part of the market; however their impact, if any, on the market will be taken into account.
• Is vertical integration an anti-competitive activity under the Act? Vertical integration is not an anti-competitive practice; in fact, vertical integration can represent a pro-competitive and efficiency enhancing strategy by a firm. However, should vertically integrated firms engage in an anti-competitive act, the Bureau would not hesitate to intervene.
• The Bureau is aware that there have been reports of closures by independent booksellers. In this regard, it should be stressed that closures in an industry would only create a concern under the Competition Act if such closures are the result of anti-competitive activities in the market and not due to the ongoing pressures of operating in a competitive and dynamic market place. The Act is intended to ensure that all firms have an equitable opportunity to compete. It does not afford special protection to those who cannot withstand the pressures of a competitive market.
• In our discussions with some members of the Canadian book selling industry, the issue was raised as to whether or not the Bureau's analysis under the Competition Act included some consideration of cultural concerns. As I have indicated earlier, the Act is a law of general application with a clear and targeted focus on competition. Consequently, it does not deal with other public policy issues such as the nationality of ownership or the need to promote and maintain cultural objectives. Such an approach is consistent with the antitrust approach taken by Canada's major trading partners. When governments decide that a particular industry requires some form of special or preferential treatment, this is accomplished through the introduction of specific programs or legislation targeted to the particular industry concerned. Those activities of the industry which would fall under direct regulation resulting from such specific legislation would be exempt from the scrutiny of the Competition Act.

VII. Investigation of Chapters/Pegasus

• As Committee members are aware, the Bureau has conducted an investigation into the creation of Pegasus Wholesale Inc. by Chapters Inc.
• In this regard, it is important to note that Bureau examinations are conducted in private and that Bureau officials are bound by the Act's confidentiality provisions. Accordingly, I can only provide information which is in the public domain.
• The Bureau has concluded that the mere creation of Pegasus by Chapters does not contravene the Competition Act. The facilities used to establish Pegasus were wholly owned by Chapters before being used to form the wholesale operation. Their transfer to Pegasus, which is majority owned by Chapters, was essentially a reorganization of assets rather than a change in ownership. Therefore this did not constitute a merger.
• While the creation of Pegasus does not create competition law concerns, any business activity engaged in by Chapters or Pegasus is subject to the Competition Act. Given the significant market presence of Chapters and the evolving business activities of Pegasus, we are continuing our investigation and monitoring developments in the market.

VIII. Conclusion

• In conclusion, Mr. Chairman and Committee Members, the Competition Act exists to promote and enhance a competition in the marketplace. When there is evidence of anti-competitive activities that contravene the Act, the Bureau will not hesitate to bring these issues to the appropriate judicial body for remedial action.
• My Colleague and I will be pleased to answer any questions you may have. Thank you.