VanDuzer Report - Part 2

Competition Act Provisions Dealing with Anticompetitive Pricing

Statutory Scheme of the Competition Act

Introduction

There are a variety of provisions of the Competition Act dealing with the three types of anticompetitive pricing addressed in this study: price discrimination, predatory pricing and price maintenance. Some are criminal offences. Others are contained in Part VI, the civil part of the Act. Where there is a contravention of a civil provision, the Commissioner may apply to the Competition Tribunal for an order prohibiting the person engaged in the anticompetitive behaviour from continuing it. The main requirement for the Tribunal to make such an order is that there be some specified effect on competition. In the following sections of this Part, the law as interpreted by the courts as well as the Bureau’s Price Discrimination Enforcement Guidelines and Predatory Pricing Enforcement Guidelines is set out.

We begin with a general overview of all the relevant provisions of the Act. The more detailed discussion which follows is confined to the three criminal provisions dealing directly with price discrimination, predatory pricing and price maintenance and the abuse of dominance provision.

Price Discrimination

The Act contains a variety of provisions dealing with situations in which different prices are charged to different customers. Some of these refer to such pricing practices as “discrimination” even thought the economic requirements for true discrimination discussed in Part I may not be present. In the following discussion, we will use discrimination in this broader sense as referring to all situations in which differential pricing is used.

The general price discrimination provision is section 50(1)(a) of the Competition Act. Price discrimination by a seller in its sales of articles to buyers purchasing the same quality and quantity and who compete in the same market is a criminal offence in certain circumstances. As well, section 61, the general price maintenance provision, which makes it a criminal offence to refuse to supply a person because of the person’s low pricing policy, also makes it an offence to “otherwise discriminate” against a person for that reason. Otherwise discriminating for the purposes of section 61 may include price discrimination.

Several provisions dealing with price discrimination appear in the civil part of the Act. Outright refusal to deal with a customer, the ultimate discriminatory act, is specifically addressed in section 75. Relief is available, however, only in certain circumstances, including the inability of the customer to obtain supply from other sources in the market. Under section 76, the Competition Tribunal may order that a seller discontinue a practice of consignment selling where it finds that the practice has been introduced for the purpose of price discriminating. Section 76, unlike section 50(1)(a), extends to “products”, not just articles. Under the Act, “products” includes services. Discrimination in the form of “delivered pricing” may also be subject to an application to the Tribunal under section 80. Delivered pricing means refusing to deliver articles at a particular location on the same trade terms as the supplier delivers the article to other customers at the same location.

Section 77 of the Act deals with certain practices which may involve price discrimination. The Competition Tribunal may make an order prohibiting the practice of granting price concessions to induce a customer to deal exclusively in a particular product or refrain from dealing with a particular product, if certain requirements are met, including the requirement that competition is or is likely to be lessened substantially. Also, where discrimination in the pricing of one product by a supplier is used as an inducement for a buyer to acquire some other product, the supplier is engaged in tied selling and the Tribunal may make an order prohibiting the discrimination where the same competitive effect test is met.

Discrimination may also take the form, not of price differences, but of differential access to promotional allowances. Section 51 makes such discrimination a criminal offence in some circumstances.

Predatory Pricing

Predatory pricing is addressed in section 50(1)(c), which prohibits "unreasonably low pricing" having the effect or tendency of substantially lessening competition or eliminating a competitor or designed to have either effect. Where price discrimination is practised by a seller in connection with its sales in different regions of the country with the same predatory consequences, an offence is committed under section 50(1)(b).

Price Maintenance

Price maintenance is a criminal offence under section 61. The offence is committed regardless of whether the activity designed to maintain prices is engaged in horizontally by one competitor against another or vertically by a supplier in relation to a customer. Refusal to supply because of a person's low pricing policy is also prohibited though certain defences are available. Under section 61(6), any person who attempts to induce a supplier to refuse to supply by imposing such refusal as a condition of doing business with the supplier is also guilty of an offence. Under section 76, the Competition Tribunal may order that a seller discontinue the practice of consignment selling where it finds that the practice has been introduced for the purpose of resale price maintenance.

Abuse of Dominance

Price discrimination, predation and price maintenance may also be addressed under the abuse of dominance provision, section 79, where the requirements of that provision are met. The conduct must be found to be an abuse of market power by a dominant firm with the effect or tendency of substantially lessening competition. Section 78 sets out a non-exhaustive list of acts which may be found to be an abuse of dominant position, some of which refer to pricing practices.

Other Provisions

Certain other provisions of the Act are relevant to a discussion of anticompetitive pricing practices, though they are not within the terms of reference of this study. Agreements to fix prices among competitors are prohibited under section 45 where the result is an undue lessening of competition. As noted above, horizontal price fixing may also be addressed under section 61. It was suggested in Part I that market power is required before most pricing practices will have anticompetitive effects. Mergers may create the structural requirements for the exercise of market power and are regulated under the Competition Act. Abuse of market power by merging entities in the form of anticompetitive pricing practices might be considered in relation to whether the Commissioner would seek to challenge a merger.⁷⁷

Under section 36 of the Act, all the criminal offences under sections 50, 51 and 61 may be the subject of private civil proceedings by anyone who has suffered damages as a result of the commission of the offence. Breaches of the civil provisions, sections 75, 76, 77, 79 and 80, may not be the subject of private action.⁷⁸

Price Discrimination

General Discussion

A criminal prohibition on price discrimination was introduced into Canadian law in 1935⁷⁹ following the report of the Royal Commission on Price Spreads in the same year.⁸⁰ The main concern of the Royal Commission was that large buyers might be able to use their market power to extract unfairly large discounts from suppliers. The grocery industry was identified as particularly threatened by this type of behaviour. Food suppliers were thought to have been coerced by large supermarket chains into granting large discounts, which gave the chains an unfair advantage when competing with independent stores at the retail level.⁸¹ It was also a time during which small businesses were in decline and large retail chains were developing. The purpose of the provision was to protect small business.⁸²

The price discrimination provision reads as follows:

• 50. (1) Every one engaged in a business who
• (a) is a party or privy to, or assists in, any sale that discriminates to his knowledge, directly or indirectly, against competitors of a purchaser of articles from him in that any discount, rebate, allowance, price concession or other advantage is granted to the purchaser over and above any discount, rebate, allowance, price concession or other advantage that, at the time the articles are sold to the purchaser, is available to the competitors in respect of a sale of articles of like quality and quantity,...
• is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years.
• (2) It is not an offence under paragraph (1)(a) to be a party or privy to, or assist in, any sale mentioned therein unless the discount, rebate, allowance, price concession or other advantage was granted as part of a practice of discriminating as described in that paragraph.

The essence of the provision is a prohibition on suppliers granting concessions on price to one purchaser which are not available to competing purchasers of the same article in like quality and quantity.⁸³ The provision contains some significant limitations. Unlike most of the provisions of the Act, it only applies to a "sale" of "articles". Other forms of transactions, such as leases are not included; sales of anything other than an article, such as a service, are not included.⁸⁴ As discussed below, however, both may be addressed under the abuse of dominance provision.

For the offence to be established, there must be a sale to a purchaser on terms that, at the time of the sale are not available to a second prospective purchaser who competes with the first. If the purchasers do not carry on business in the same market, such as where one sells to final consumers, while the other sells only to other businesses, no offence is committed. Finally, the price concession must be granted as part of a practice of discriminating. Discounts for particular purposes which occur occasionally and are of short duration, such as those for gaining entry into a new market or to respond to a competitor's behaviour will not likely be considered to be a practice.⁸⁵ There must be knowledge of each element of the offence. The supplier must have knowledge that the sale is discriminatory. The Restrictive Trade Practices Commission concluded that this requirement required only negligence in Mary Maxim Knitting Wool.⁸⁶

The provision has been the subject of very few criminal prosecutions. There have been only three (3) convictions, all since 1984.⁸⁷ In each case, the accused pleaded guilty. One of the factors militating against convictions is that there are many elements, each of which must be proven beyond a reasonable doubt. Despite its apparent ineffectiveness,⁸⁸ its possible application has been a significant concern in the business community. In the absence of judicial decisions providing guidance regarding how the provision should be interpreted, the Bureau received many requests for advisory opinions regarding whether certain kinds of pricing practices were consistent with the Act. Many commentators have claimed that the uncertainty surrounding the application of the provision meant that it had a chilling effect on pricing strategies with no anticompetitive effect and resulted in unnecessary compliance and monitoring costs.⁸⁹ In 1992, in order to provide better guidance regarding its interpretation of the price discrimination provision, the Bureau issued the Price Discrimination Enforcement Guidelines.⁹⁰ As discussed below, the guidelines have been only partly successful in dispelling the chilling effect associated with the provision even though they are generally perceived as disclosing a relatively permissive interpretation of the provision.⁹¹

The Competition Bureau raised the question of whether the provision should be abolished in its 1995 Discussion Paper on possible amendments to the Competition Act.⁹² Abolition was endorsed by the Consultative Panel on amendments to the Competition Act in its 1996 Report.⁹³ The Panel concluded that criminal prohibitions and penalties are inappropriate tools to deal with price discrimination and that the abuse of dominance provision is sufficient to deal with cases of price discrimination which were injurious to competition. The Panel also found that the protection of small business afforded by the provision was overstated, particularly because it permits the granting of volume discounts which will tend to favour large businesses.

Nevertheless, section 50(1)(a) was retained unchanged in the most recent round of amendments which came into force in March 1999. The reason, suggested by the Director of Investigation and Research who was responsible for introducing the amendments, George Addy, was that some small business sectors felt strongly that the provision provided them with protection.⁹⁴ Accordingly, it was concluded that the provisions should not be repealed until further study had confirmed whether the claimed protection existed in fact.

Price Discrimination Enforcement Guidelines

The Price Discrimination Enforcement Guidelines, published by the Bureau in 1992, purport to set out the Bureau's enforcement policy and its interpretation of the price discrimination provision. The Director's purpose in issuing the Guidelines was

• to foster compliance with the law while ensuring that the business community recognizes the legitimate scope which exists, within the law, for the adoption of innovative pricing practices and strategies.⁹⁵

At the time, the approach described by the Guidelines was greeted by many in the business community as a welcome lightening of the practical burden imposed by the price discrimination provision. The approach of the Guidelines is helpful and moves interpretation of the provision in the direction indicated by the economic analysis in Part I. The Guidelines are not binding, however, and compliance does not insulate particular business practices from review by the Bureau, though enforcement action against a practice consistent with the Guidelines may be practically unlikely. Perhaps more importantly, the Director's interpretation may not be accepted by a court and so reliance on it where it departs from the wording of the provision may be deterred by the risk of a private action under section 36 of the Act.

Prior to the Guidelines, the prevailing view was that only volume based discounts were immune from attack under the Act. The Guidelines indicate that the Bureau would be unlikely to take action against a wide range of other discounting practices taking the form of conditional discounts so long as the conditions of eligibility are the same for all competing purchasers. Conditional discounts are available upon the purchaser fulfilling some condition, such as performing a service for the seller (sometimes referred to as a "functional discount"),⁹⁶ or upon the purchaser agreeing to deal exclusively in the seller's products (sometimes referred to as an "exclusive dealing discount") or upon a purchaser increasing purchases over a prior period (sometimes referred to as "growth bonuses" or "fidelity discounts"). The Guidelines indicate that none of these are likely to raise issues assuming that they are available to all purchasers who compete with each other. While permitting these sorts of discounts would appear to be consistent with the price discrimination provision, their acceptance represented a significant departure from the enforcement policy in place prior to the release of the Guidelines. Growth discounts, for example, had previously been the subject of enforcement action in R. v. Simmons.⁹⁷ The new approach is based on a broader view of the requirement in section 50(1)(a) that discounts and other concessions be “available” to all competing purchasers.

The Guidelines make clear that discrimination is only prohibited where it relates to a monetary advantage. The provision of technical assistance, tickets to sporting events and other non- monetary advantages are not caught. The Guidelines also clarify the requirements for purchasers to aggregate their purchases through a buying group for the purpose of obtaining larger volume discounts as well as suggesting that the sometimes difficult determination of whether businesses are competitors be based on the rules regarding market definition set out in the Merger Enforcement Guidelines. Also the meaning of a “practice” of discriminating is clarified. Significantly, price cuts to meet the competition will normally not be found to constitute a practice. Other issues addressed in the Guidelines include how to interpret “like quantity and quality” and when sales are considered to have taken place.

Certain aspects of the interpretive approach in the Guidelines appear to depart from the strict wording of the section. In some respects, the approach in the Guidelines appears to make the price discrimination provision more onerous than contemplated in the section but in others a less onerous approach is contemplated.

The requirement that discounts and other concessions be “available” is interpreted in a manner which has been criticized as not consistent with section 50(1)(a) and unduly onerous.⁹⁸ The Guidelines go to some length to provide direction on what “available” means. Where a seller on its own initiative offers a concession to one customer, it must make the same offer to competing customers. If a purchaser initiates negotiations, and, at the end of negotiations, a concession is agreed to, the seller need not offer it to competing purchasers. The seller only needs to offer it if another purchaser asks for it directly. The Guidelines specifically state that there is no obligation to offer the concession where a competing purchaser asks only for the seller’s “best deal”. Some have suggested that this interpretation suffers from practical difficulties in real world situations where it may be difficult to distinguish purchaser initiated negotiations from unilateral offers by sellers. More significantly, this approach may be argued to be inconsistent with the Act to the extent that the Guidelines interpret “available” as requiring an offer to be made. Section 51 requires that promotional allowances be offered to competing purchasers. Parliament must be considered to have intended a different and lower degree of obligation by using “available” in section 50(1)(a). A court may not accept that the terms should be given the same meaning in circumstances where a seller has made a unilateral offer to someone else as the Guidelines suggest.

Unlike certain other provisions of Act,⁹⁹ section 50(1)(a) does not exempt sales between affiliates. Nevertheless, the Guidelines appear to create an exemption for enforcement purposes. They state that the Bureau may consider transactions between affiliates as being something other than sales and so outside the price discrimination prohibition. The jurisprudence on what is a sale, however, is well settled and it seems unlikely that a court would exclude a transaction between affiliates if the formal requirements for a sale, including, in particular, the passing of title, are met.¹⁰⁰

The Guidelines indicate that all the franchisees in a franchise system may be treated as a single economic unit, such that anyone selling to the franchisees may aggregate all their purchases for the purpose of granting volume discounts. Such an approach makes economic sense where there are cost savings to a seller associated with selling to a whole system, and when, as the Guidelines stipulate, the franchisor requires each franchisee to purchase from the seller. Nevertheless, it means interpreting “purchaser” in section 50(1)(a) to include all the franchisees. When all purchases are made by the franchisor who directs delivery to the franchisees such an interpretation is consistent with the Act. Where, however, the franchisees make their purchases individually and are individually responsible for payment, this interpretation seems doubtful.¹⁰¹

The Guidelines contain one other interpretive guide designed to reduce the burden of the price discrimination provisions. The Guidelines suggest that enforcement will only occur where the supplier is at least willfully blind as to the elements of the offence. As noted, previously negligence had been thought to be sufficient.

Comparison with the U.S. and Europe

United States

Federal antitrust law in the United States dealing with price discrimination is similar though more strict than the law in Canada. With the enactment of the Robinson-Patman Act¹⁰² in 1936, the United States adopted a criminal prohibition in terms similar to the section 50(1)(a). As well the Clayton Act,¹⁰³ as amended by the Robinson-Patman Act, prohibits price discrimination in circumstances where the discrimination causes an injury to competition and provides a civil remedy for private parties who are victims of such discrimination. Upon proof of discrimination, a prima facie case is established. The onus then shifts to the discriminator to justify its behaviour. Where a private party is successful, it is entitled to three times its actual damages.¹⁰⁴ Public enforcement responsibilities are shared by the Antitrust Division of the Department of Justice and the Federal Trade Commission. The Antitrust Division alone is responsible for criminal prosecutions. The Federal Trade Commission may investigate price discrimination and other breaches of antitrust laws and issue cease and desist orders.¹⁰⁵

Academics and the officials charged with enforcing federal antitrust laws have expressed the view that the Robinson-Patman criminal prohibition, divorced from any test of the effect of the discrimination on competition, is inconsistent with economic understanding of when price discrimination is anticompetitive.¹⁰⁶ The Antitrust Division of the U.S. Department of Justice has publicly stated that the criminal provision is not an enforcement priority.¹⁰⁷ All possible breaches of Robinson-Patman Act are referred to the Federal Trade Commission to determine whether investigations are warranted. The Federal Trade Commission has sporadically taken action against price discrimination, though there have been relatively few investigations.

With respect to the Clayton Act provisions, there are two main defences available, meeting the competition and cost justification.¹⁰⁸ So long as differences in prices may be attributed to differences in the costs of supplying different customers or to a response to pricing by a competitor, the discriminating firm will escape liability. Both these defences are justifiable on economic grounds but have proved difficult to rely on in practice. Various commentators have argued that cost justification is too expensive and difficult to establish, with the result that U.S. suppliers simply do not discriminate leading to increased price rigidity.¹⁰⁹ The “meeting the competition” defence has also been criticized as leading to price rigidity. As well concerns have been expressed that the defence encourages businesses to check each other’s prices to make sure that they can take advantage of the defence. Such price verification has been approved by the U.S. courts despite the obvious risk that it may facilitate cartel-like behaviour.¹¹⁰

Price discrimination by a dominant firm may be found to be contrary to the prohibition on monopolization and attempted monopolization under section 2 of the Sherman Act.¹¹¹ A firm with monopoly power is prohibited from engaging in anticompetitive acts to maintain or enhance its market power. Similarly a firm which does not have a monopoly is prohibited from engaging in anticompetitive acts to obtain monopoly power where there is a “dangerous probability of success"¹¹² of such a strategy. Monopolization does not require complete control of a market, but must involve the power to control price and exclude competition. This basis for dealing with price discrimination is described in more detail under the discussion of abuse of dominance below.

Europe

Under the Treaty of Rome¹¹³ European law also prohibits price discrimination, though the circumstances in which a breach will be found vary somewhat. Article 81(1)(d)(formerly Article 85(1)(d))¹¹⁴ prohibits agreements that apply dissimilar conditions to equivalent transactions with other trading parties thereby putting them at a competitive disadvantage. Though this language is broad enough to include price discrimination, it only applies to “concerted” actions of multiple parties, not unilateral action. As such, section 81 would only apply to price discrimination imposed by cartels or as a consequence of an agreement or some other concerted action, between a supplier and someone else. Also, the discrimination must have as its object or effect the “prevention, restriction or distortion of competition.¹¹⁵ There have been no published cases to date in which price discrimination has been challenged under Article 81(1)(d). The Director- General responsible for competition policy has indicated that price discrimination is not an enforcement priority of the Commission unless engaged in by a dominant firm, in which case the requirements of the European abuse of dominance provision, Article 82 (formerly article 86), are applied.¹¹⁶

Under Article 82 “applying dissimilar conditions to equivalent transactions with other trading parties thereby putting them at a competitive disadvantage” may be an abuse. This provision has been interpreted as not requiring identical treatment. It is violated only when there are significant unjustified differences in prices charged to buyers. So, for example, volume discounts are permitted.¹¹⁷ It is not clear, however, when different treatment will be found to be unjustified. Fidelity discounts have been held to be unjustified.¹¹⁸ The Commission and the Court of Justice have held that discounts which are based on sourcing exclusively from one supplier are abusive because they treat identical transactions differently. As in the United States, cost justified discounts and discounts to meet the competition are permitted.¹¹⁹ Offering special low prices to a competitor’s customers to attract their business or on the condition that they refrain from dealing in a competitor’s products has been held to be an abuse.¹²⁰

Assessment

Because price discrimination is common place and typically not anticompetitive, it is essential that the approach to dealing with price discrimination in Canada focus on when it has anticompetitive effect. The criminal price discrimination provision and its interpretation by the Bureau as expressed in the Price Discrimination Enforcement Guidelines have several defects in this regard.

Provisions of the Act: The exclusion from the price discrimination provision of transactions other than sales of articles is an apparent anachronism which fails to take into account the much broader range of transactions characteristic of the contemporary market place and the enormous and growing importance of transactions involving services and intellectual property rights. As noted, the civil provisions of the Act which apply to price discrimination in some circumstances do not have such limitations.

As well, the price discrimination provision in the Competition Act may be considered to be out of step with contemporary economic thinking on competition policy and much of the rest of the Act. Section 50(1)(a) focusses on protecting particular competitors from being discriminated against rather than protecting competition in the marketplace. In most circumstances, price discrimination is not anticompetitive and yet, unlike the American Clayton Act, nothing in the provision requires any assessment of the effect of price discrimination on competition.¹²¹ Section 50(1)(a) does not even focus on truly discriminatory behaviour.

Most importantly, section 50(1)(a) does not include market power as a required element of the offence. Unless a supplier has market power, a supplier should not be able to discriminate because the victim can turn to another source of supply.

The current provision does not give sufficient scope for differential pricing motivated by considerations that are not anticompetitive. The offence is restricted to discrimination not justified by differences in quantity or quality. The provision does not require there to be any relationship between any price difference and the difference in quality or quantity. To be precise, there is no requirement for discrimination based on quantity or quality differences to be justified by reference to differences in the cost of supplying articles in different quantities or of different quality. Nor does the current provision permit other types cost justified discrimination.¹²² By contrast, the Clayton Act directly recognizes cost justification.¹²³

Meeting the competition is another defence which is not referred to in section 50(1)(a) but is permitted under the Clayton Act. The Guidelines suggest, however, that if a supplier is only meeting the competition, normally the “practice” requirement of section 50(1)(a) will not be satisfied.¹²⁴

Section 50(1)(a) does not refer to whether discrimination is initiated by a competitor which the economic analysis in Part I suggests may be an indicator of circumstances in which price discrimination is anticompetitive. While the economic analysis in Part I shows that discrimination initiated by a competitor will not always have an anticompetitive effect, it may be a relevant indicator.

The current civil provisions dealing with the ultimate discriminatory act, refusal to deal, and behaviour which is functionally equivalent to price discrimination, such as tied selling, require a consideration of anticompetitive effects. The Competition Act would be more internally consistent as well as being more consistent with the economic analysis in Part I if it dealt with price discrimination in the same way.¹²⁵

As it stands, it is probable that the provision discourages pricing practices which are not harmful to competition, imposing unnecessary compliance and monitoring costs on business. Because breach of the price discrimination provision carries the stigma of a criminal offence it may strongly deter behaviour which approaches price discrimination but which would be pro-competitive. This criminal stigma is not appropriate, even where price discrimination is anticompetitive, because it is not inherently criminal in the way that an agreement to fix prices is. For both reasons, the Consultative Panel concluded that the provision should be repealed and that any anticompetitive price discrimination could be addressed under the abuse of dominance or other civil provisions. This conclusion had been reached previously by several other studies.¹²⁶

The abuse of dominance provision provides a ready framework for dealing with price discrimination which is consistent with the prescriptions of economic theory because it requires that the discriminator have market power and an assessment of the competitive effect of the discrimination. It would also allow enforcement action to take place in circumstances where the discrimination takes a form other than the sale of articles, avoiding the anachronistic limitations in section 50(1)(a). Section 79 would permit consideration of the aggregate anticompetitive effect of price discrimination and any other anticompetitive conduct engaged in by the discriminating firm. In this way, dealing with price discrimination under the abuse provision holds the prospect for more accurate assessments of the circumstances in which price discrimination is anticompetitive from an economic efficiency point of view.

In Europe, price discrimination is dealt with as an abuse of dominance. The European law on abuse of dominance is not informed by an economic model based on efficiency. Rather, the Europeans seek to control the operations of dominant firms in the interests of ensuring fairness in the market place, including the freedom of traders from being coerced by practices of dominant firms, including discrimination.¹²⁷ The requirement that price discrimination be engaged in by a dominant firm under Article 82 before it will attract enforcement attention is consistent with economic theory, as is European recognition of cost justification and meeting the competition as defences. Nevertheless, there are, undoubtedly, a much broader range of circumstances in which discrimination would be prohibited in Europe than economic theory would prescribe. In practice, the effect of the European approach may be similar to the strict American criminal approach under the criminal provisions of the Robinson-Patman Act under which no consideration of the effect on competition is required.¹²⁸

The abuse provision’s competitive effects standard is sufficiently flexible to allow the Competition Tribunal to take into account the kinds of considerations which are addressed in Europe. The Tribunal could seek to balance overall efficiency considerations against the interests of competitors in being free from discrimination in light of the circumstances of each case when determining whether there has been a substantial lessening of competition.

As well, the Tribunal has scope under the abuse provision to ensure that its decisions are responsive to the exigencies of the new economy. In a world characterized by innovation, an appropriate approach to price discrimination must consider the longer term dynamic effects in the market. Price discrimination in favour of partners in strategic alliances, for example, may be justified by the innovation the alliance is likely to produce. Such considerations are necessary for a competition policy responsive to the information economy.¹²⁹

The potential application of the abuse of dominance provision to price discrimination is considered in the last section of this part.

Price Discrimination Enforcement Guidelines: While the Guidelines suggest an enforcement policy more consistent with economic considerations, they do not have the effect of transforming section 50(1)(a) into the type of provision that economic theory would prescribe. Significantly, the Guidelines do not read into the section an effect on competition test. This is entirely consistent with the provision which provides no scope for doing so. Nevertheless, it means that the Guidelines are only of limited effect in making section 50(1)(a) an effective provision for dealing with price discrimination.

The interpretive approach in the Guidelines is helpful by clarifying several interpretive questions in ways that are consistent with the economic analysis in Part I. Most significantly, by taking the position that any discount, whatever its form is acceptable so long as it is reasonably available to all competing purchasers, the burden of section 50(1)(a) has been lightened considerably. Unfortunately, the benefit is undermined to some extent by the requirements imposed by the Guidelines before a discount may be considered available. These requirements may be difficult to apply and, arguably, are inconsistent with the language in the Act.

The expansive interpretation of “sale” adopted in the Guidelines, which was intended to reduce the compliance burden for business, is not supported by the provision either. It might be justifiable from an economic point of view to treat all affiliated corporations as a single economic entity. Indeed, the sale price in transactions between affiliates may be affected by factors not applicable to sales between independent parties, such as the allocation of income between affiliates. Nevertheless, it is not clear that where there is a transfer of title between affiliates a sale will not have occurred for the purposes of the provision. As a consequence, it would seem inappropriate to exclude all transactions between affiliates from review.

A final concern regarding the Guidelines is that, while the abuse provisions and the other civil provisions of the Act dealing with discrimination are mentioned, the Guidelines provide little direction regarding the critical questions as to how these provisions will be applied in price discrimination cases or the criteria to be used to decide whether to proceed under one provision rather than another.¹³⁰ For example, the question of how discrimination induced by the market power of a large customer may be subject to review under the abuse of dominance provision is not considered.¹³¹

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