Keeping pace in changing times: The importance of competition advocacy

Remarks by John Pecman, Commissioner of Competition

C.D. Howe Institute Roundtable Luncheon

Toronto, Ontario

November 9, 2015

(As prepared for delivery)


Introduction

Thank you, Bill. Good afternoon, everyone.

I am pleased to be here at the C.D. Howe Institute today, speaking to a group that is perhaps just as excited as I am about advancing competition policy in Canada.

I am here to highlight a need for an ongoing focus on matters of national importance. Although top of my list is whether the Blue Jays should re‑sign David Price, let’s come back to that one during the Qs and As.

Let me start by briefly addressing the Tenth Report of the C.D. Howe Institute’s Competition Policy Council, which was issued last week. One of the Report’s recommendations is the creation of an independent oversight body for the Bureau. Given our institutional design as a law enforcement agency within a government department, with the accompanying government and judicial oversight, it is not evident to me that another layer of oversight is required. However, I am prepared to listen to evidence‑based concerns of the Institute.

The Council has raised some issues that continue to be high on my priority list, such as transparency, performance measurement and strategic planning. These issues have received—and will continue to receive—my attention and action.

On the issue of transparency, the Bureau looks for every opportunity to build trust and predictability. That is why we continue to issue an ever‑growing list of policy guidelines and enforcement bulletins for public consultation. And as you know, this year, we developed our first ever three‑year strategic plan, which we published for public consultation. We are increasing transparency by making enforcement data available, and by providing background on our enforcement decisions. And don’t just take my word for it—the numbers speak for themselves. Take for example the number of position statements issued—we went from two in 2011 to 18 last year.

Performance measurement is another key priority. Determining how to measure the impact of competition authorities is a work‑in‑progress around the globe. That is why we are aligning the Bureau’s performance measurement practices with existing best practices set out by the Organisation for Economic Co‑operation and Development (OECD). It is also why we retained Charles River Associates to review methodologies to estimate consumer impacts and provide recommendations. And it is why we are engaging in an international benchmarking exercise.

We take a “continuous improvement” approach to these issues based on international best practices, all while respecting the terms of our legislation, reporting requirements and government policies—including the administrative oversight exercised by Industry Canada—which is now known as the Department of Innovation, Science and Economic Development.

Like you, I believe that we can always do better, and that is why we will continue to devote time, attention, and resources to continuous improvement.

Now let’s get to why I am here.

I am here today to talk to you about the growing importance—and growing value to the Canadian economy—of competition advocacy.

The purpose of competition advocacy is to promote an efficient, vibrant and innovative marketplace at pivotal moments—when regulators are designing, renewing, or revising regulation, or when decision‑makers raise broader competitiveness issues in key sectors of the economy. In these cases, our traditional enforcement tools—with their longer timeframes, formal processes, and narrow fact sets—do not provide the answers that public policy makers need to ensure that their regulatory regimes are revisited with competition in mind. Nor do they allow for a sector‑wide inquiry to analyse broad competiveness issues.

Effective competition advocacy requires agility and responsiveness to the issues that concern Canadians. These attributes are even more important today, as regulators are faced with an exponential rate of change in the marketplace, driven by new and innovative technologies and business models. The sharing economy, which so effectively matches buyers with sellers through a wide range of evolving digital platforms, is an example of how innovation can rapidly outpace regulation. The role of competition agencies in helping public policy makers reach their goals—in a way that allows competition and innovation to flourish—has never been more critical.

This is why the Competition Bureau and our international counterparts are advocating for increased competition in regulated sectors—and why it is essential that governments place a strong emphasis on the value of competitive markets.

Competition, regulation, and the role of advocacy

Let me start with the Bureau’s approach to competition promotion.

As you know, the Bureau’s basic operating assumption is that competition is good for businesses and consumers—it leads to lower prices, increased consumer choice, and economic efficiency.

At the same time, we acknowledge that some regulation can have positive effects on the economy. Restraining competition can be a sound public policy response to address market failures.

As an example of what can happen when regulations are insufficient or poorly designed, we need only look at the subprime mortgage crisis that devastated markets at home and abroad.

But not all regulation is helpful.

Introducing regulation in the absence of market failures can block or impede entry by innovative new competitors, as your Institute explored in the 2013 “Beer, Butter and Barristers”Footnote 1 report on competition and regulation.

The rapid pace of change in today’s markets makes the job of the regulator more difficult than ever. As Deloitte recently observed in a report on the future of regulationFootnote 2, regulators are facing significant challenges as they struggle to keep up with disruptive technologies, new business models, and changing consumer attitudes. For those of us who are visual, Deloitte likens the challenge of keeping pace with new technologies as playing a game of regulatory "whack‑a‑mole".

This is nowhere more evident than in the exponential growth of the sharing economy. Disruptive innovations are offering many exciting opportunities for businesses—as well as lower prices, greater convenience and a wider array of choices for consumers. Look at Airbnb, which is serving 34,000 cities across 190 countries and is valued at more than US$25 billion.Footnote 3 Or Uber, operating in 200 cities in 64 countries, which was valued at more than US$50 billion this summer and could now be worth between US$60 billion and US$70 billion.Footnote 4 These figures are significant.

At the same time, these innovations are giving rise to new policy issues that impact competition in the marketplace.

In the interest of brevity, let me mention just three.

First, there is a risk of reacting with excessive or unnecessary regulations. Sharing economy models can pose a competitive threat to traditional industries, which may lead incumbents to pressure regulators to enact restrictions that exclude new business models—models that could bring benefits to consumers. A recent example is the taxi industry’s ongoing struggle to discourage the growth of Uber in Canadian markets. When governments raise barriers to entry or limit how businesses can compete, economic efficiency suffers. So does the consumer, who is left with fewer choices.

Second, it becomes even more important to promote competition in Canadian communications networks. Many new businesses in the sharing economy rely on the internet to connect buyers and sellers. Given the potential growth in this space, there is a need for continuing advocacy to ensure that strong competition exists among Canada’s telecom service providers.

Third, while sharing economy platforms are today’s market entrants, they can easily become tomorrow’s incumbents. These platforms could potentially adopt anti‑competitive practices, such as preventing users from switching to competitors or otherwise limiting competition. And the Regulated Conduct Doctrine can make it difficult for the Bureau to take enforcement action once regulations are in place. Those regulatory frameworks should allow the Bureau to enforce the Competition Act in these instances, just as we do in more traditional markets.

It is in this dynamic and rapidly changing environment that advocacy is needed the most—at the intersection of regulation, competition, and business behaviour. Advocacy helps ensure that the benefits of competition arising from innovative entrants are considered when it matters the most: at the development state of regulations, and not after the fact.

The Bureau’s advocacy mandate

The Bureau’s advocacy mandate is rooted in the purpose clause and other provisions of the Competition Act. Sections 125 and 126 give us legislative authority to intervene before federal and provincial regulatory bodies, and we put this authority to good use—most recently with submissions to the Department of Finance on payment systems, and the Canada Transportation Review Panel on competition in the air and rail transport sectors.

In the case of payment systems, we recommended providing more flexibility for consumers to switch between products, and allowing merchants to manage fees for emerging payment methods.

In the case of transportation, we recommended liberalizing foreign ownership restrictions for airlines, as well as regulatory changes that would promote sustainable competitive shipping options.

I believe that we are making a difference with our regulatory interventions. But they are not the Bureau’s only advocacy tool.

The role of market studies

That brings me to market studies—a key tool for any competition agency.

Market studies help policy‑makers better understand the root causes of apparent competitiveness issues in the economy. Take, for example, the Bureau’s recent examination of Canadian propane markets to determine whether anti‑competitive activity had contributed to a spike in prices.

These studies can have a range of outcomes, from motivating direct action from governments to acting as a persuasion tool for industries to voluntarily modify their business practices.

Let me briefly mention three studies that the Bureau has undertaken in recent years.

  • First, our study on self‑regulated professions, where we found that the examined professions—including accountants and lawyers—restricted competition through the rules they impose on their members. We offered guidance to regulators about competition‑friendly alternatives that could still achieve their policy goals.
  • Second, our generic drugs studies, where we found that the benefits of strong competition in the supply of many generic drugs were not reaching the public in the form of lower prices. We outlined options for private and public insurance plans to resolve these issues.
  • And last, but certainly not least, our study into the beer industries in Ontario and Quebec. This study attracted attention from both the media and the public, and the Bureau actively contributed to the debate. In April 2015, the Ontario Premier’s Advisory Council recommended a number of changes to the Ontario beer market, including expansion of beer sales into grocery stores. In light of these developments, we discontinued the study.

In addition, market studies provide the Bureau with insights that enable better enforcement decisions. For example, last year, we were able to use information gleaned during the beer study to resolve a complaint from a market participant more quickly than would have been possible without the information and analysis from our market study.

Market studies are valuable. But some businesses and lawyers disagree that the Bureau has the ability to undertake them. They say that we lack the jurisdiction to do so.

But this lack of clarity around the ability to conduct market studies is unique to Canada.

More than 40 countries around the world, including our major trading partners—the European Union, the United States, the United Kingdom and Mexico—have the express legal authority to use market studies as a key tool to enhance their economic competitiveness.

And while the Bureau relies on information provided voluntarily by market participants to conduct its studies, these agencies have access to formal investigative powers to compel information from regulators and companies. The value of these formal investigative powers in enhancing agencies’ ability to thoroughly assess the state of competition was recently recognized by the OECD’s Competition Committee.

Our international counterparts are active in this area. They are conducting market studies and they are making recommendations to their governments to inform regulatory and other decision‑making processes. Let me share just a couple of examples with you.

In the United States, the Federal Trade Commission (FTC) issued a report on the effect of authorized generic drugs on competition in the prescription drug market. The FTC found that authorized generics had a substantial effect on competition in the market for prescribed drugs.Footnote 5

In Mexico, the competition authority looked at competitive conditions in the country’s financial market. Their report offered a number of recommendations to improve mobility among users of financial services and create incentives for financial intermediaries to improve their product offerings.Footnote 6

These are just two of many examples of how competition advocacy is being used by Competition agencies around the world to inform effective, pro‑competitive regulations.

Keeping pace in a changing world

With lightning‑fast innovation outpacing regulation in many sectors, it is crucial that we make a concerted effort to ensure that those sectors remain competitive. Reliance on competition and market forces is vital to the growth of innovation and productivity in Canadian industries. Indeed, the Conference Board of Canada recently reiterated that competition is a key driver of productivity growth. As the Board noted, enhancing Canada’s productivity means fostering a culture of business innovation, opening industries to competitive pressures, and developing a supportive policy environment.Footnote 7 This is of particular importance in the face of increasing foreign trade in a globalized economy.

As regulators take on the challenges raised by rapidly changing industries and technologies, it is essential that competition remain a guiding principle. And regulators may not have all of the expertise or perspectives needed to implement rules that are minimally restrictive to competition. United States Federal Trade Commission Chairwoman Edith Ramirez recently summed up the challenge as follows: “How should regulators appropriately respond to a highly dynamic market in which the business models of today may be completely transformed tomorrow?”Footnote 8

As a starting point, we need better recognition of the value of competitive markets. To thrive in a globalized market economy, competition should be the default. It should be restricted only in limited circumstances, where it can be shown that regulation is needed to address market failure.

We encourage provincial and federal governments to reach out to the Bureau for assistance in ensuring that their regulatory frameworks are minimally restrictive on competition. This is an active offer. We firmly believe in the old adage that "an ounce of prevention is worth a pound of cure"Footnote 9, and we are ready and willing to participate in regulatory reviews.

Moving forward

We have had some success in the past through our regulatory interventions, market studies and other advocacy work. But we need continued support from governments and stakeholders to be effective in our role. And we need strong voices like yours to emphasize that competition is essential to enhancing innovation, productivity, and our overall prosperity in the global economy.

Now, in the spirit of keeping pace, let’s move to our discussion.

Thank you.

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