Skip to content | Skip to institutional links

Common menu bar links

Price Discrimination and Promotional Allowances

Report

1996

1. Background

Section 50(1)(a) of the Act deals with price discrimination. Price discrimination is a criminal of fence and involves the practice of granting price concessions to one purchaser which are not avail able to competing purchasers in respect of a sale of articles of like quality and quantity. The provi sion is part of the criminal law for historical (constitutional) reasons, not because it deals with a practice which is so serious as to warrant a criminal law deterrent.

The promotional allowances provision (s. 51) was added to the Act in 1960 to prohibit granting allowances for advertising or display purposes that are not offered on proportionate terms to compet ing purchasers. Studies preceding its introduction had found that very large buyers received sub stantial extra allowances not as discounts but as payments for promotional services. It was decided that this situation warranted specific treatment because it did not appear to be captured by the price discrimination provision.

There have been very few cases, and only one contested case, involving the price discrimination and promotional allowances provisions. As a result, the dearth of jurisprudence provides businesses and their counsel with little guidance as to the interpretation of these provisions.

In 1992, the Bureau issued price discrimination enforcement guidelines. Their purpose was to bring policy more in line with the general mandate of the Act to maintain and encourage competition, and to address uncertainty about the provision. It was generally perceived to have a "chilling" effect on businesses, who were refraining from adopting pricing practices and strategies which could be pro -competitive and making a significant number of requests to the Bureau for advice and interpretation.

Despite the release of enforcement guidelines, there remains a degree of uncertainty concerning the legality of various pricing strategies. The price discrimination provision is capable of different interpretations and private parties could seek to challenge practices that would not be touched by the Bureau because its limited resources are directed at other, higher priority matters. The companion provision on promotional allowances is more rigid insofar as it outlaws the granting of allowances except on proportionate terms. The net effect is a potential chill on pricing strategies that could be pro-competitive and promote the efficient functioning of a dynamic marketplace.

2. The Public Consultations

The discussion paper proposed that both the price discrimination and promotional allowances provi sions be repealed and that such practices be addressed under the existing reviewable matters provisions.

Most of the responses received supported repealing the provision. The majority agreed that the existing reviewable matters provisions, particularly the abuse of dominance provision, could ad equately cover situations where there are "any legitimate competition law concerns" and that, to the extent that price discrimination is engaged in by a supplier who is one of many, the market itself will correct the situation. The most frequent comment received in support of the proposal was that firms would be more inclined to engage in pricing activities that would be pro-competitive if these provisions were repealed.

However, a few of the responses expressed concern. In particular, there was concern that, if the deterrent of a criminal prohibition were no longer in place, suppliers would quickly change their practices, which would tend to eliminate small businesses. It was suggested that a criminal offence be maintained for the most egregious cases. Concern was expressed that the existing reviewable matters provisions would not cover all situations involving price discrimination, thus requiring a specific provision to deal with them.

3. The Consultative Panel

Following a careful review of this proposal and the issues it entails, the Panel concluded that the current provisions should be repealed. The Panel felt that issues with respect to suppliers' pricing could be better dealt with under the reviewable matters provisions of the Act.The Panel agreed that a criminal prohibition and criminal sanctions were not the appropriate tools to deal with these types of behaviour.

The Panel considered the concerns of some elements of the small business sector that placed reli ance on these provisions. However, it felt that the benefit to those businesses was overstated more a matter of perceived, than real, benefit. The existing provisions do not prevent a supplier from granting a discount or a rebate to a purchaser who buys more, and so have done very little to protect small retailers from the exertion of buying power on the part of large buyers. Rather, they have had the perverse effect of discriminating against dynamic small businesses by permitting suppliers to make price concessions solely on the basis of volume.

Issues which the Panel also considered in support of the repeal of these provisions included:

the fact that there are still businesses that feel very constrained by these provisions. There is a tendency to continue adhering to past practices, despite the issuance of the Bureau's guidelines;

even with guidelines, compliance with the price discrimination provision represents a signifi cant burden for businesses;

there is a continuing threat of private actions which may not be pro-competitive in their ef fects; and,

these provisions are inconsistent with the general thrust of the Act, which focuses on the competitive impact of conduct.

The Panel considered including a specific civil provision for price discrimination and promotional allowances or dealing with this conduct as a type of anti-competitive act under
s. 78. In the end, the Panel concluded that the reviewable matters provisions, and particularly the abuse of dominant position provision (s. 79), are broad and flexible enough to deal with price dis crimination. Accordingly, no new provisions should be created.