Merger Enforcement Guidelines

Draft for Consultation
March 2004

Part 7 - Countervailing Power

7.1 In determining whether a merger is likely to result in a material price increase, the Bureau assesses the ability of one or more buyers to constrain this exercise of market power.⁸⁸ When credible options are available to buyers, buyer concentration can prevent a price increase and make it difficult for sellers to exercise market power.⁸⁹

7.2 Buyers may credibly constrain the ability of a seller to exercise market power if:

• they have the ability to immediately switch to other suppliers in a reasonable amount of time;
• they can vertically integrate their operation into the upstream market; or,
• the promise of substantial orders entices entry by a potential supplier not currently in the market.

7.3 Where price discrimination is a feature of the relevant market, it may be possible for some but not all buyers to counter the effects of an exercise of market power. For example, a merged entity may be able to increase price to small buyers who may not have the option to vertically integrate their operations, even though large buyers with this option may constrain such a price increase. In such cases, countervailing power may be insufficient to prevent the merged entity from exercising market power in a substantial part of the market.⁹⁰

⁸⁸ Though not specifically addressed in the legislation, "countervailing power" is considered pursuant to section 93(h) of the Act. Countervailing power is also discussed in the Bureau's Enforcement Guidelines on the Abuse of Dominance Provisions (Ottawa: Industry Canada, 2001) at page 2. In monopsony cases involving the potential exercise of market power by a buyer through its ability to decrease price, the Bureau will assess the ability of one or more sellers to constrain this exercise of market power.

⁸⁹ See News Release – "DIR Decision on the Acquisition of the Assets of Domglas Inc. by Consumers Packaging Inc.", April 25, 1989, Backgrounder at p. 2; News Release – "Director Does Not Challenge the Luscar Acquisition of Manalta", September 11, 1998; and, Information Notice, "Fording Coal Merger Passes Bureau Scrutiny", April 15, 2003.

⁹⁰ Consideration may be given to whether the formation of a buying group among individually small buyers is a credible option such that the group could have countervailing power.