Appendix - The Abuse of Dominance Provisions (Sections 78 and 79 of the Competition Act) as Applied to the Retail Grocery Industry

Enforcement Guidelines:

Appendix I Appendix II

Appendix III Appendix IV

Back to Guidelines

---

Appendix I:

78.

(1) For the purposes of section 79, "anti-competitive act", without restricting the generality of the term, includes any of the following acts:

(a) squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the supplier, for the purpose of impeding or preventing the customer's entry into, or expansion in, a market;

(b) acquisition by a supplier of a customer who would otherwise be available to a competitor of the supplier, or acquisition by a customer of a supplier who would otherwise be available to a competitor of the customer, for the purpose of impeding or preventing the competitor's entry into, or eliminating the competitor from, a market;

(c) freight equalization on the plant of a competitor for the purpose of impeding or preventing the competitor's entry into, or eliminating the competitor from, a market;

(d) use of fighting brands introduced selectively on a temporary basis to discipline or eliminate a competitor;

(e) pre-emption of scarce facilities or resources required by a competitor for the operation of a business, with the object of withholding the facilities or resources from a market;

(f) buying up of products to prevent the erosion of existing price levels;

(g) adoption of product specifications that are incompatible with products produced by any other person and are designed to prevent his entry into, or to eliminate him from, a market;

(h) requiring or inducing a supplier to sell only or primarily to certain customers, or to refrain from selling to a competitor, with the object of preventing a competitor's entry into, or expansion in, a market;

(i) selling articles at a price lower than the acquisition cost for the purpose of disciplining or eliminating a competitor.

(j)acts or conduct of a person operating a domestic service, as defined in subsection 55(1) of the Canada Transportation Act, that are specific under paragraph (2)(a); and

(k) the denial by a person operating a "domestic service", as defined in subsection 55(1) of the Canada Transportation Act, of access on reasonable commercial terms to facilities or services that are essential to the operation in a market of "an air service", as defined in that subsection, or refusal by such a person to supply such facilities or services on such terms.

(2) the Governor in Council may, on the recommendation of the Minister (of Industry) and the Minister of Transport, make regulations

(a) specifying acts or conduct for the purpose of paragraph 1(j); and

(b) specifying facilities or services that are essential to the operation of an air service for the purpose of paragraph (1)(k)

79. 

(1) Where, on application by the Director, the Tribunal finds that:

(a) one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business,

(b) that person or those persons have engaged in or are engaging in a practice of anti-competitive acts, and

(c) the practice has had, is having,or is likely to have the effect of preventing or lessening competition substantially in a market, the Tribunal may make an order prohibiting all or any of those persons from engaging in that practice.

(2) Where, on an application under subsection (1), the Tribunal finds that a practice of anti-competitive acts has had or is having the effect of preventing or lessening competition substantially in a market and that an order under subsection (1) is not likely to restore competition in that market, the Tribunal may, in addition to or in lieu of making an order under subsection (1), make an order directing any or all the persons against whom an order is sought to take such actions, including the divestiture of assets or shares, as are reasonable and as are necessary to overcome the effects of the practice in that market.

(3) In making an order under subsection (2), the Tribunal shall make the order in such terms as will in its opinion interfere with the rights of any person to whom the order is directed or any other person affected by it only to the extent necessary to achieve the purpose of the order.

(4) In determining, for the purposes of subsection (1), whether a practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market, the Tribunal shall consider whether the practice is a result of superior competitive performance.

(5) For the purpose of this section, an act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under the Copyright Act, Industrial Design Act, Patent Act, Trademarks Act or any other Act of Parliament pertaining to intellectual or industrial property is not an anti-competitive act.

(6) No application may be made under this section in respect of a practice of anti-competitive acts more than three years after the practice has ceased.

(7) No application may be made under this section against a person

(a) against whom proceedings have been commenced under section 45, or

(b) against whom an order is sought under section 92

on the basis of the same or substantially the same facts as would be alleged in the proceedings under section 45 or 92, as the case may be. R.S., 1985, c. 19 (2nd Supp.), s. 45; 1990, c. 37, s.31; 1999, c. 2, s. 37.

---

Appendix II:

List of Economic Papers Commissioned by The Competition Bureau*

If the following information is not accessible to you, please contact the Information Centre at 1-800-348-5358 to obtain a print version.

1. Dr. Guofu Tan: The Economic Theory of Vertical Restraints (PDF: 124 KB)

2. Dr. Jean-Francois Wen: Market power in Grocery Retailing: Assessing the Evidence for Canada (PDF: 165 KB)

3. Dr. J. Stephen Ferris: Alternative Approaches to Vertical Constraints: Theoretical Models and Current Practices ( in Grocery Retailing) (PDF: 224 KB)

---

*These papers are availble on the Bureau Web site at http://www.cb-bc.gc.ca

---

Appendix III:

Definitions

Discounts. A percentage discount off the invoice price of the goods for payments made within a short period of time. Typically, this is 1-2% for payments within 10-15 days.

Listing Fees. Fixed payments made by manufacturers to wholesalers or retailers. The payments are not necessarily one- time ones, but may continue after a fixed period of time.

Pay-to-stay Fees. See Listing Fees.

Slotting Allowances. Fixed payments made by manufacturers to retailers or wholesalers, generally for agreeing to carry product as a listed commodity in their warehouse or distribution centre. The payments are not necessarily one- time ones, but may continue after a fixed period of time.

Terms of Payments. The length of time allowed for payments. Typically, the net terms range from 30 to 60 days.

Upcharges. Wholesale fees added onto manufacturer prices when goods are bought by retailers from wholesalers on a "cost plus" basis.

Volume Discounts. Purchase price discounts or earned cost reductions offered by manufacturers that are typically based on reaching predetermined purchase quantity thresholds.

---

Appendix IV

References

Besanko, D. and M. K. Perry (1993), "Equilibrium Incentives for Exclusive Dealing in a Differentiated Products Oligopoly,"RAND Journal of Economics,24: 646-647.

Bork, R. (1978),Antitrust Paradox, New York: Basic Books.

Chen, Z. (2001), "Dominant Retailers and Countervailing Power: The Galbraith Hypothesis Reconsidered," working paper, Carleton University.

Comanor, W. and H. Frech (1985), "The Competitive Effects of Vertical Agreements,"American Economic Review, 75: 539-546.

Dobson, P. W. and M. Waterson (1997), "Countervailing Power and Consumer Prices,"Economic Journal,107: 418-430.

Ellison, S. and C. Snyder (2001), "Countervailing Power in Wholesale Pharmaceuticals," working paper, M.I.T.

Marx, L. M. and G. Shaffer (2001), "Upfront Payments in Vertical Contracting," working paper, University of Rochester.

Mathewson, G. F. and R.A. Winter (1984), "An Economic Theory of Vertical Restraints,"RAND Journal of Economics, 15: 27-38.

O'Brien, D.P. and G. Shaffer (1997), "Nonlinear Supply Contracts, Exclusive Dealing, and Equilibrium Market Foreclosure,"Journal of Economics & Strategic Management6: 755

Rey, P. and Stiglitz, J. (1995), "The Role of Exclusive Territories in Producers' Competition,"RAND Journal of Economics,26: 431-451.

Shaffer, G. (1991), "Slotting Allowances and Resale Price Maintenance: A Comparison of Facilitating Practices,"RAND Journal of Economics,22: 120-135.

Tirole, J. (1988),The Theory of Industrial Organization, The MIT Press.

von Ungern-Sternberg, T. (1996), "Countervailing Power Revisited,"International Journal of Economics,14: 507-520.

Winter, R. A. (1993), "Vertical Control and Price versus Nonprice Competition,"Quarterly Journal of Economics,108: 61-76.