VanDuzer Report - Part 2(2)

Predatory Pricing

General Discussion

Predatory pricing is a criminal offence under section 50(1)(c) of the Competition Act. Several elements must be established before the offence is proven. The alleged predator must be engaged in business and engaged in a policy of selling products at prices which are unreasonably low. As discussed in more detail below, both the “policy” requirement and the “unreasonably low” price requirement have raised difficult interpretive issues. Finally, one of four (4) alternative requirements must be met with respect to the policy:

1. The policy must have the effect or tendency of substantially lessening competition;
   
   
2. The policy must have the effect or tendency of eliminating a competitor;
   
   
3. The policy must be designed to substantially lessen competition; or
   
   
4. The policy must be designed to eliminate a competitor.

There has been very little jurisprudence to inform the interpretation of these requirements. In Hoffman-La Roche,¹³² it was held that before a policy will be found there must be a conscious decision to sell at an unreasonably low price and there must be continuing or repeated sales, though a written policy need not be found. This approach was applied recently in R. v. Perreault Driving Schools.¹³³ Low pricing for a brief period, such as 48 hours for the purpose of meeting the competition, was held not to be a policy in Producers' Dairy.¹³⁴

"Unreasonably low" was interpreted in the Consumers Glass¹³⁵ case. The court stated that the purpose of section 50(1)(c) was to prohibit selling at low prices for an anticompetitive purpose. The Court went on to describe a “classical example of predation” as deliberately sacrificing present returns by lowering price for the purpose of driving a rival out of the market, then raising prices to recoup the sacrificed returns and earn higher profit. The Court did not give any indication as to how to identity such a purpose, except to say that an anticompetitive purpose should not be inferred from the fact that a firm sets prices to a particular level with the intention of gaining business from a rival even if the alleged predator knew that pricing at that level would make it difficult for a new entrant to stay in the market. As the court stated, setting prices so as to take business away from rivals for the purpose of minimizing losses to a new entrant or maximizing profit is the whole object of competition. So long as a firm is acting to maximize profits or minimize losses, prices should not be considered unreasonably low.¹³⁶ The court did not identify the existence of market power or the existence of barriers to entry as necessary conditions to a finding of predation, as our economic analysis in Part I would prescribe.

In Consumers Glass, the industry suffered from chronic excess capacity and prices were above average variable cost. The Court determined that, in these circumstance, prices could not be said to be unreasonably low. They were set to minimize losses. Such low pricing would be expected equally where demand falls off due to a depressed market. In neither case should an intention to predate be inferred.

Where a price reduction is defensive, that is, in response to price cutting by a rival, even if it is a pre-emptive response, pricing is unlikely to be found to be unreasonably low unless it is disproportionate, in some way, to the rival's behaviour.¹³⁷ So, for example, if the alleged predator's price cut is excessively deep or maintained for a long period of time, low prices put in place as a defensive response may nevertheless be found to be unreasonably low.¹³⁸ In Hoffman- La Roche, a defensive response consisting of giving away drugs for 6 months on two occasions was held to be predatory.

Another factor relevant to determining if prices are unreasonably low is cost. In 947101 Ontario Limited Ltd. v. Barrhaven Town Centre Inc. et al. it was confirmed that it is only the alleged predator's costs which are relevant, not those of the victim.¹³⁹ As discussed in the economic analysis in Part I, if only the victim’s costs were considered, pricing above the predator’s costs which was below the costs of a less efficient competitor could be found to be predatory. The courts have been less clear on what is the appropriate cost based test. While Consumers Glass and Hoffman-La Roche held that pricing above average total cost could not be predatory, the presumption of predation from pricing below average variable cost suggested by Areeda and Turner has not been adopted, nor has a test been articulated for grey zone pricing between average variable cost and average total cost.

The issue of sales below average variable cost was not addressed in Consumers Glass on the basis that there was no evidence of such sales in that case.¹⁴⁰ In Hoffman-La Roche, where the alleged predation consisted of giving away drugs, the court did not state a definitive rule with respect to below average variable cost pricing. Instead, the court acknowledged that there may be circumstances in which pricing below some measure of cost would be justified and the question to be asked in each case, as indicated above, was whether there were any "external or anticipated long term economic benefits which would accrue to the seller by reducing its prices below cost". The court suggested that where the firm was attempting to defend its market share, or attempting to "keep its business alive, its customers supplied and its employees working during a difficult economic period" predation should not be found.¹⁴¹

Under the Act, once a policy of selling at unreasonably low prices is found the question becomes whether the policy has the “effect or tendency of substantially lessening competition or eliminating a competitor, or (is) designed to have that effect”. Though the case law provides little guidance, several preliminary observations may be made regarding the interpretation of these requirements. While “effect” refers to a state of affairs which has occurred, “tendency” refers to a state of affairs which has not yet occurred but where there is some likelihood that it will occur. The Bureau must assess the actual results of the predation in the market to determine the effects and must assess what is likely to occur in the market to assess tendencies. Assessing competitive effect of the results, however, will require consideration of the likely future behaviour of existing and prospective market participants. By contrast, the reference to "designed" suggests an enquiry into the subjective intention of the alleged predator without regard to whether the behaviour, in fact, has had or would tend to have any particular effect.

A “substantial lessening of competition” is the same language used in the abuse of dominance provision and when considering the effect or the tendency of a policy of unreasonably low pricing, it may be that a court would adopt the interpretation of that standard developed in abuse cases.¹⁴² The application of the abuse of dominance provision and this test are discussed in more detail below. It is difficult to say more regarding these alternative bases of liability because there has been no judicial decision addressing these aspects of the provision.

In some cases, there will be evidence of intent to predate. Though no such evidence was found in Consumers Glass, the court commented on the inherent unreliability of such evidence. Words used to describe aggressive competition may be used carelessly, inadvertently suggesting an intention to eliminate a competitor.¹⁴³ By contrast, in Hoffman-La Roche, intent evidence was relied on to convict the accused.

The Competition Act contains one other provision directed at predatory pricing behaviour. Geographic price discrimination occurs where a person charges prices for products in one area of Canada which are different from those that it charges elsewhere. Geographic price discrimination is specifically prohibited under section 50(1)(b) of the Act where any of the same lessening of competition or elimination of a competitor tests has been met. There has been only one conviction under this section.¹⁴⁴

The Predatory Pricing Enforcement Guidelines

In 1992, the Competition Bureau issued the Predatory Pricing Enforcement Guidelines which interpret the predatory pricing provision in a manner essentially consistent with the economic model of predation described in Part I and, for the most part, consistent with the limited case law, though there are some areas in which the Guidelines may be considered to go beyond the wording of the provision.

The Bureau adopts a two part test to determine whether prices are unreasonably low based on the approach endorsed by the OECD.¹⁴⁵ First, the Bureau looks at one of the key indicators of predation identified in Part I: market power, including market share and barriers to entry. In order to define market share, the first task is to define the relevant geographic and product market. The Predatory Pricing Enforcement Guidelines suggest that this will be done in the same manner as is indicated in the Merger Enforcement Guidelines.¹⁴⁶ Once the market has been defined, the next step is to look at market share. According to the Predatory Pricing Enforcement Guidelines, where the alleged predator has less than 35 per cent of the market, the alleged predator would probably not be able to affect price unilaterally.¹⁴⁷ Other market structure considerations are referred to in the Guidelines. For example, the relative size of the alleged predator compared to its rivals in the marketplace may be important. If the alleged predator is much larger than its rivals and the competitive fringe of smaller firms, the likelihood of market power is increased.

The Bureau is less likely to pursue a case in which barriers to entry are low and entry into the predator’s market or the expansion of the operations of existing firms would be likely to occur if the predator attempted to recoup its losses from a predatory campaign by raising prices.¹⁴⁸ The Guidelines suggest that in considering barriers to entry, again the approach set out in the Merger Enforcement Guidelines¹⁴⁹ will be followed. The Guidelines specifically refer to the 2 year period specified in the Merger Enforcement Guidelines as the appropriate time period to assess barriers to entry: are barriers sufficiently low that price increases following the predatory campaign will invite entry into the industry on a sufficient scale within 2 years to ensure that price increases could not be sustained. The use of this 2 year period has been criticized on the basis that the appropriate time period should depend upon the circumstances, including the length and severity of the period of predation.¹⁵⁰

Under the Guidelines, barriers to entry include both cost advantages enjoyed by incumbent firms, such as barriers in the form of licensing requirements which the incumbent has already satisfied and control of essential technology or sources of raw materials through vertical integration. Sunk costs, those that cannot be recovered should an entrant fail, may also deter or reduce the scale of entry. These include costs associated with acquiring market specific assets which have no use or value outside their application in the relevant market.¹⁵¹ Barriers may also result from the presence of economies of scale or scope which the new entrant would have to achieve to be competitive.¹⁵²

While economic analysis prescribes that barriers to entry be considered, some have questioned whether the approach taken in the Guidelines is the best one. Hunter and Hutton suggest that all sunk costs may be financed so long as capital markets are perfect. Hunter and Hutton are not troubled that this assumption is unjustified in practice because, in their view, imperfections in capital markets are not the problem of the Commissioner of Competition.¹⁵³ With respect to cost advantages, Hunter and Hutton argue that only those which are external to the predator, such as a licensing scheme, should be taken into account. If a cost advantage is due to efficiencies of the predator it should not figure in the analysis because it will not permit the predator to earn supra- normal profits. It will only be able to price up to the level of its competitor’s costs before entry or expansion will occur. From an efficiency point of view, predation is less of a concern where the predator is demonstrably more efficient than its victim.

The Guidelines also acknowledge the possibility of strategic barriers, such as actions by firms to create a reputation for toughness which would discourage entry. Running up sunk costs may be another form of strategic behaviour as are exclusive dealing and tied selling arrangements and other arrangements with customers which may make market entry difficult.¹⁵⁴

While no market power test is expressly called for in section 50(1)(c) or by the case law, it must be acknowledged that, as a standard, "unreasonably low" does not give specific guidance as to the relevant criteria for its application. Arguably, it is susceptible to an almost unlimited range of interpretations and Hoffman-La Roche¹⁵⁵ directs that all relevant circumstances be taken into account. On this basis the interpretation in the Guidelines cannot be said to be inconsistent with the Act, though, at the same time, one cannot state that a court would come to the same result with complete confidence.¹⁵⁶

The second step, in determining whether there is evidence of unreasonableness, is to apply a cost based test. Consistent with Consumers Glass and Hoffman-La Roche, prices above average total cost will not be considered to be unreasonable low. As noted, the case law does not provide specific guidance regarding price/cost comparisons. Nevertheless, the Guidelines go on to do so. Prices less than average variable cost will be considered to be unreasonably low in the absence of some legitimate commercial objective, such as the need to sell off perishable inventory.¹⁵⁷ Under the Guidelines, prices in the “grey area” (between average total cost and average variable cost) may be predatory or not depending on all the circumstances. If there is direct evidence of predatory intent or the alleged predator was lowering prices in the face of increasing demand, the Bureau would consider that the prices in the grey area were unreasonably low. By contrast, prices in the grey area may be considered reasonable where demand is declining, or there is substantial excess capacity in the market, even if it causes the exit of other firms.¹⁵⁸ Excess capacity was one of the factors relied on by the court in Consumers Glass as a justification for prices in the grey range. Because capacity was more than double what was required, "competition and the desire to make as high a contribution as possible toward fixed overhead will naturally drive down the price of the product below the total cost of manufacturing that product and towards but not below the variable cost of manufacturing the product."¹⁵⁹

The Guidelines suggest a methodology for the determination of costs, both variable and fixed.¹⁶⁰ They do not suggest a time frame. As indicated above, from the point of view of economic theory, it is only reasonably anticipated long run costs which are relevant.¹⁶¹ The Guidelines provide no direction with respect to the time frame for looking at costs though they do express a preference for forecast over historical cost.

The Guidelines refer to the requirement, stipulated in section 50(1)(c), for the alleged predator to have a “policy” of selling at unreasonably low prices. This part of the Guidelines closely follows the interpretation of this requirement in the case law. The Director will look for pricing which is not "a competitive expedient of brief duration," but rather is "a deliberate corporate program" of "sufficient duration." Sufficiency will be determined by reference to the characteristics of the market. So, for example, where the market is seasonal, prices maintained over a relatively short time may be considered a policy.

As described so far, in developing a framework for analysing whether prices are unreasonably low the Guidelines, in effect, require consideration of the effect and likely future effect on competition. Section 50(1)(c) mandates such an inquiry when one is considering whether the alleged predatory behaviour has the effect or tendency of substantially lessening competition. But competitive effect is not the only basis for liability under section 50(1)(c). The provision also refers to the effect of or tendency to eliminate a competitor and to unreasonably low pricing policies designed to substantially lessen competition or eliminate a competitor. As noted above, a policy may be found to be designed to have these effects regardless of whether it has or is likely to have them. The two stage test described above is concerned with the likely effect in the market, with whether the alleged predator is going to be able to recoup its losses. The test itself may not be satisfied where the effect is only to eliminate a competitor. More significantly, the test does not take into account subjective intent as an independent basis of liability.

There are several statements in the Guidelines which suggest that meeting the two stage test for unreasonably low prices is not an absolute threshold requirement for proceeding with a complaint about predatory pricing. The Guidelines indicate that unreasonable low prices may be inferred from all the circumstances including, evidence of predatory intent and the exclusion or elimination of competitors.¹⁶² Some have argued that willingness to consider intent and effects on competitors simply muddies the analysis.¹⁶³ There are many problems¹⁶⁴ when relying on evidence of intention in these circumstances, and the attitude of the courts is difficult to predict given the different approaches taken in Hoffman-La Roche and Consumers Glass. Nevertheless, the precise wording of the section requires that it be taken into account.¹⁶⁵ The thrust of the Guidelines, however, is to de-emphasise these bases of liability.¹⁶⁶

Comparison with United States and Europe

United States

Predatory pricing is addressed in the United States either as a possible violation of section 2 of the Sherman Act or of section 3 of the Robinson-Patman Act. Under the Sherman Act predation is dealt with as a species of monopolization or attempted monopolization. The Robinson-Patman Act prohibits price discrimination and thus addresses predatory pricing where the predatory prices are not charged to all customers in all markets though, as noted in relation to price discrimination, this criminal provision is rarely enforced. While there are some differences, the broad outlines of U.S. federal laws on predation operate in a manner substantially similar to the approach taken by the Bureau as expressed in the Guidelines.¹⁶⁷

In terms of enforcement, private civil proceedings to seek relief from predatory pricing may be taken under the Clayton Act in connection with violations of the Sherman Act and, as with price discrimination, the Federal Trade Commission may investigate and issue cease and desist orders in relation to predation. The Antitrust Division of the Department of Justice may prosecute violations of the Sherman Act or take civil action.

Since the decision of the 7^th Circuit Court of Appeals in A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.,¹⁶⁸ in 1989, the first step in the analysis of predation is whether there is a prospect of recoupment. If recoupment is implausible, then there is no need to go forward to look at a comparison of pricing and costs.¹⁶⁹ In A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc. it was also held that evidence of subjective intent is essentially irrelevant.¹⁷⁰ This approach was approved by the Supreme Court of the United States in 1993.¹⁷¹

The Supreme Court has not authoritatively determined what is the appropriate cost test for predation. The most commonly applied standard is a modified version of the Areeda-Turner test. If prices are below average variable cost, intent to monopolize will be presumed though the presumption may be rebutted. By contrast, if prices are above average total cost, predation is presumed to be absent. In the grey zone, likelihood of success is determined by reference to market structure characteristics. If high barriers to entry exist and the alleged predator has a large market share a dangerous probability of success will be found.¹⁷²

Various states have laws which address predation and related issues. Some are laws of general application and some address specific sectors. Some of these state statutes have been interpreted in a manner consistent with the federal approach, while others are used to protect classes of competitors, typically protecting unintegrated, independent businesses from large vertically integrated competitors.¹⁷³ The effectiveness of these laws has been questioned. Often they suffer from sporadic enforcement. In jurisdictions with such laws, several studies have shown higher prices prevail as compared to states without such laws. Some have concluded that higher prices reflect higher retail margins for retailers.¹⁷⁴ However, in his recent study of the U.S. gasoline industry from 1987 to 1992, Johnson concluded that sales below cost laws do not protect independent gas marketers.¹⁷⁵ Johnson determined that the existence of sales below cost did not have a significant impact on slowing the decline in the number of small outlets.

Europe

In Europe, predation is dealt with only where it is engaged in by a dominant firm contrary to Article 82 of the Treaty of Rome. The elements which must be established are broadly similar to those referred to in the Guidelines, though there have been relatively few cases so the precise requirements cannot be stated with certainty. European cases have not developed a robust economic analysis of predation.

In AKZO Chemie BV v. Commission,¹⁷⁶ the Court of Justice took the position that sales below average variable cost should be considered predatory, following the approach advocated by Areeda and Turner. Where prices are between average variable cost and average total cost, abuse may still be found where there is evidence of a plan to eliminate a competitor.¹⁷⁷ While the prospect of recoupment has been referred to in European cases, it has not emerged as an independent requirement for a finding of abuse by predation. The requirement that a firm be dominant may be, at best, a weak proxy for prospects of recoupment. Market share alone does not reveal anything regarding barriers to entry, a key consideration in any recoupment analysis. A finding of dominance in Europe may but need not take into account barriers to entry.¹⁷⁸

Assessment

Provisions of the Act: The predatory pricing provision, on its face, is uncertain in scope. As discussed above, the requirement for unreasonably low prices requires some analytical framework if it is to be applied in any coherent way. While the case law suggests that some cost/price comparison is relevant it does not indicate precisely what the test should be nor has a recoupment analysis been adopted or rejected. The cases do hold that where there is some procompetitive rationale for low pricing which is consistent with the conditions in the market, low pricing should not be considered unreasonably low. Nevertheless, there has not been sufficient case law to develop a clear analytical framework, as in the United States and, to a lesser extent, in Europe.

In the absence of an analytical framework for determining when prices are unreasonably low, the provision is potentially extremely broad. Any intention to eliminate a competitor or the elimination of a competitor in fact, combined with low prices may be sufficient for liability. While efficiency concerns might argue in favour of a regime which prevented below cost pricing which had the effect of eliminating a more efficient, vigorous or innovative competitor, the existing provision protects all competitors, regardless of the overall effect on competition or efficiency. To this extent, the provision is in conflict with the economic analysis of predation based on efficiency.

Economic theory is based on business people acting in rational ways. The existing predatory pricing provision is based, in part, on the view that the market does not always reflect rational behaviour, in the sense that rationality requires profit maximizing or loss minimizing.¹⁷⁹ In the real world, business people may decide to predate when they have no prospect of recoupment, either because they miscalculate market conditions or they prefer predation over profit maximizing strategies. For public corporations, capital markets will exercise some discipline on managers in both cases, but in private firms it may be only the architects of predatory policies who suffer the consequences of their bad judgement or idiosyncratic preferences. Nevertheless, in some subset of such cases, there may be real damage inflicted on other participants in the market place as a consequence of conduct which is intentionally destructive of competition.

There may be no efficiency justification for intervening in such a case. Unsuccessful predation will provide consumers with the benefit of temporarily low prices and the continuing competition in the market will prevent supra-competitive pricing. Nevertheless, enforcement action would appear to be possible under the section. Indeed, in some circumstances, a court may be concerned that one of the purposes of the Act, “maintaining competition ... to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy” could only be served by convicting someone with a clearly demonstrated intention to eliminate a competitor through a low pricing policy. Such a conclusion would be even more compelling if a vigorous, innovative competitor was eliminated, as a consequence of the predatory pricing.

Though there has never been a case in which predatory pricing has been found under the abuse of dominance provision, it has several advantages over the criminal predation provision. It expressly includes a requirement for market power as the economic analysis in Part I prescribes. As well, it requires an assessment of the effect on competition. The Tribunal would be able to consider not only whether there was a prospect of recoupment through supra-competitive pricing, but also the effects of predatory behaviour on the dynamic of competition in the market in which the predation took place. Such effects would include effect of the loss of particular competitors and their prospects for re-entry. The Tribunal would have to sort out the extent to which it was appropriate to take into account non-efficiency based considerations, such as the fairness of intentionally eliminating a competitor through low prices.

The abuse provision would also permit account to be taken of the particular conditions in the marketplace, including the factors discussed in relation to the new economy in Part I. Where a market was characterized by high levels of innovation, declining costs and network effects, low pricing which eliminated a competitor might nevertheless be found to be procompetitive, where the pricing was part of a strategy to introduce a new and better technology and any dominance which resulted was unlikely to be sustained in the face of future innovation. In such a market, the prospects of supra-competitive pricing likely would be remote.

The application of the abuse provision is considered at the end of Part II.

Predatory Pricing Enforcement Guidelines: The approach taken in the Guidelines generally accords with the approach suggested by the economic analysis described in Part I, and adopted by the OECD and the United States Supreme Court. Although such an approach has not yet been fully adopted in Europe, recent decisions suggest a trend in that direction. The Guidelines provide a useful analytical framework for interpreting the vague language of section 50(1)(c). Nevertheless, while the basic elements prescribed by an economic approach are addressed, one may be concerned about the extent to which the Guidelines have had to stretch the language of the Act to accommodate these economic considerations.¹⁸⁰ As well, the Guidelines themselves would be improved by more fully accounting for the new theories of predation referred to in Part I and the exigencies of the new economy.

With respect to the consistency between the Guidelines and the Act, the main concern is how the Guidelines deal with intent and the elimination of competitors. While the Consumers Glass case accepted that below cost pricing should not be prohibited where there is a procompetitive explanation and no direct evidence of intent to eliminate a competitor, it did not address the situation where intent is present. It is not clear whether, where intent evidence is available, it would be necessary to show that a predatory strategy would have been successful in the sense that the predator would have been able to recoup its losses incurred during its predatory campaign. As discussed, above, the express reference to the elimination of a competitor or a design to do so in section 50(1)(c) would seem to confirm that a reasonable prospect of successful recoupment in fact is not necessarily required. The possibility for finding predation where there is no prospect of recoupment appears only faintly in the Guidelines. That the approach suggested in the Guidelines may vary from what the Act requires does not mean that approach is wrong. It is more consistent with economic theory than the provision itself. Any variance from the statute does, however, make the Guidelines less reliable as a guide to private sector behaviour.

Apart from their approach to the Act, there are several other criticisms that may be levelled at the Guidelines. As will be discussed below, the abuse of dominance provision provides a firmer statutory basis for the kind of analysis suggested in the Guidelines. The Guidelines acknowledge the possibility of proceeding under the abuse provision but provide little guidance as to the criteria for doing so and state no preference for doing so.

From the perspective of economic theory, the discussion in the Guidelines of “strategic barriers to entry” should be expanded to refer more specifically to the indicia of possible predation which recent economic analysis suggests should be relevant. The difficult challenge of assessing reputational effects in multiple markets and long purse predation, for example, are not addressed.

The imperatives of the new economy should be addressed as well. Guidance regarding the appropriate definition of product and geographic markets and market power in industries characterized by high rates of innovation and declining barriers to entry due to improvements in technology, for example, would make the Guidelines more relevant for firms in those industries. Below cost selling would have to be assessed in light of an analysis of the dynamic operation of the market in which the alleged predation is occurring. It is likely that legitimate efficiency enhancing competition through low pricing practices, will become more pervasive, in industries characterized by high rates of innovation, increasing returns and where the prospect of establishing the industry standard may have substantial benefits. Where dominant market share in the early period of the product cycle often spells important long term advantages that may be exploited either through higher prices or in other ways, low pricing, even pricing below cost, may be becoming increasingly commonplace.

As well, the prospects for recoupment though non-price strategies should be considered. It may be that long run benefits in forms other than higher prices may eliminate or strongly attenuate the need to recoup losses through supra-competitive prices. In some industries, losses incurred may be recouped by establishing a product standard or simply gaining market share and exploiting this situation to advantage through gains on updating or other incidental services.

As well, it would be helpful if the Guidelines were to address allegations of predation where firms sell multiple products, such as in the grocery industry. It may be very difficult to analyse predation where low pricing does not involve all of the alleged predator’s products, but only certain strategically important products. The Guidelines provide little assistance regarding how to assess predation in this context.

With respect to cost, the Guidelines should address the relevance of capacity to the appropriate measure of cost. In NutraSweet, a case under the abuse of dominance provision, the Competition Tribunal noted, as do Areeda and Turner, that average variable cost is a reasonable proxy for marginal cost only so long as the alleged predator has excess capacity. Where the predator is operating at full capacity, average total cost is a better proxy because of the necessity to expand production facilities to increase production. This insight is not reflected in the Guidelines.

Price Maintenance

General Discussion

Resale price maintenance has been prohibited in Canada since 1951.¹⁸¹ In 1960, the law was amended to add the current defences to the related offence of refusing to supply a customer because of the customer’s low pricing policy.¹⁸² In 1976, the law was further amended to broaden its reach to include all forms of price maintenance, including price maintenance engaged in by competitors, or horizontal price maintenance. The amendments also brought within the ambit of the section transactions involving services and intellectual property rights.¹⁸³

Under the present section 61 of the Competition Act, it is illegal for a person engaged in business to attempt to influence upward or discourage the reduction of the price at which any other person engaged in business offers or supplies a product in Canada by “any agreement, threat, promise or like means”.¹⁸⁴ Requests, discussion, persuasion and suggestions directed toward the maintenance of prices, however, are all permitted.¹⁸⁵ Breach of the provision is a criminal offence.¹⁸⁶

With respect to the meaning of “agreement” for the purposes of section 61, there is no requirement that any agreement be forced on the person committing to maintain prices.¹⁸⁷ Price support programs in the retail gasoline sector taking the form of voluntary allowances available to retailers to offset the effect of price drops have been held to constitute an agreement to maintain prices which indirectly discouraged retailers from reducing their prices.¹⁸⁸ Threats consist of any communication in advance of an adverse future action which will be taken if a suggested course of action is not carried out.¹⁸⁹ Threats have been held to include statements from a supplier that it would refuse to supply, reduce credit available or limit sales options if prices were not maintained.¹⁹⁰ Promise refers to holding out benefits in the future if prices are maintained. "(L)ike means" has been interpreted restrictively to include only things like or akin to an agreement, threat or promise. So, for example, an unaccepted offer of a benefit was considered to be like means.¹⁹¹

Section 61(3) provides that suggested resale prices or minimum resale prices are not prohibited provided that it is made clear to the reseller that the reseller is under no obligation to accept the suggestion and would in no way suffer in its business relations with the person making the suggestion or anyone else if it fails to accept the suggestion.¹⁹² The standard is a strict one. Where a resale price or minimum resale price is suggested, an “attempt” to influence the pricing of the person to whom the suggestion is made is proved in the absence of further proof that the proviso is also satisfied. Similarly under section 61(4), if the suggested price appears in an advertisement, it must be expressed in such a way that it is clear to any person who looks at the advertisement that the product may be sold at a lower price, otherwise an attempt to influence price upward will be found.¹⁹³ It has been held, however, that proof of an attempt for the purposes of these provisions is not proof of the offence; the Crown must still show an agreement, threat, promise or like means.¹⁹⁴ Some commentators have suggested that this renders sections 61(3) and 61(4) ineffective.¹⁹⁵

Refusing to supply a person because of that person's low pricing policy is similarly prohibited. It is sufficient for a conviction, if the low pricing policy is a reason for the refusal. It does not have to be the only reason. Refusals of new as well as existing customers are caught by the section.¹⁹⁶ It is also an offence to "otherwise discriminate" against a person because of their low pricing policy, such as by charging higher prices to a discounting reseller. A person may be liable for discriminating within the meaning of s. 61, in circumstances where the express prohibition on discriminating in section 50(1)(a) of the Act is not violated. The scope of permitted discrimination has not been clarified in the case law.

Section 61(10) provides four (4) defences for refusing to supply. A supplier may refuse to supply a person where that person is making a practice of any of the following:

1. using products supplied as loss leaders (the "Loss Leader Defence");
   
   
2. using products supplied not for the purpose of selling them for a profit but to attract customers to buy other products;
   
   
3. engaging in misleading advertising in respect of the products supplied; and
   
   
4. not providing the level of service that purchasers of the products might reasonably expect (the "Service Defence").¹⁹⁷

To avoid liability it is only necessary for a supplier to establish that it, or any person on whom it relied, had reasonable grounds to believe that its customer had acted in one of the ways described.¹⁹⁸ In each case, a practice by the customer must be shown. This has been held to be something other than an isolated act or acts.¹⁹⁹ The Loss Leader Defence has been resorted to most frequently and most successfully. There have been few cases on the Service Defence. In R. v. H.D. Lee of Canada, it was held that the relevant level of service is that which customers might expect, not the supplier.²⁰⁰

Under section 61(6) no person may, by threat, promise or any like means attempt to induce a supplier, as a condition of doing business with the supplier, to refuse to supply a product to a particular person because of the low pricing policy of that person. This section may be broadly interpreted. A complaint to a supplier about the low pricing policy of a competitor accompanied by a threat to refuse to continue doing business with the supplier if the supplier does not cut off the competitor is sufficient, even if the supplier does not respond. The Loss Leader Defence and other defences are not available in connection with proceedings under this provision.

Though the price maintenance provisions have been applied primarily in the vertical context, the possibility of dealing with price fixing as horizontal price maintenance under section 61 as an alternative to a conspiracy prosecution under section 45 is attractive because there is no requirement to show any impact on competition under section 61. Horizontal price maintenance has been found in several cases.²⁰¹ The precise scope for using section 61 as a substitute for section 45 in relation to agreements on price is not clear.

Comparison with U.S. and European Union

United States

Resale price maintenance was held to be a per se violation of section 1 of the Sherman Act in the 1911 decision of the U.S. Supreme Court in Dr. Miles Medical Co. v. John D. Park & Sons Co.²⁰² In order to establish liability, an agreement to maintain prices must be proved, either directly or by inference. Non-binding price suggestions are not illegal, even if a supplier refuses to supply a customer who does not adopt them.²⁰³ If it can be established that the suggestion amounted to coercion, a violation will be found.²⁰⁴ As with other violations of U.S. antitrust laws, enforcement action may be taken though criminal or civil proceedings initiated by the Antitrust Division of the Department of Justice, investigation and the issuance of a cease and desist order by the Federal Trade Commission or through private action under the Clayton Act.

There are two exceptions to per se illegality. Where a good is sold on consignment or through an agent there is no resale price maintenance,²⁰⁵ unless the agency or consignment was established solely for the purpose of circumventing the rule against resale price maintenance.²⁰⁶ More significantly, a seller is permitted to announce maintained prices and refuse to deal with price cutters.²⁰⁷ However, one dealer is not permitted to agree with the supplier that another dealer should be cut off. At one time, any communication between the supplier and another dealer prior to termination might give rise to an inference of an agreement on resale prices. Since the decisions of the U.S. Supreme Court in Spray-Rite Corp. v. Monsanto Co.²⁰⁸ and Business Electronics Corp v. Sharp Electronics Corp.,²⁰⁹ this exception has been more broadly interpreted. There must be an express agreement to set resale prices. Resale price maintenance will not be inferred from the termination of one dealer following complaints by another.

The enforcement policy of the Antitrust Division of the Department of Justice in the early 1980's has been not to enforce the law against resale price maintenance.²¹⁰ More recently, enforcement activity has increased.²¹¹ Resale price maintenance is the subject of investigations by the Federal Trade Commission and private civil actions.

Europe

Price maintenance by a dominant firm has been held to be a violation of Article 82 of the Treaty of Rome.²¹² Also, agreements to fix resale prices, such as agreements between suppliers,²¹³ have been found to be a breach of Article 81, though non-binding suggestions of resale prices are permitted.²¹⁴ Service enhancement has been held to be a valid defence, since it has the effect of increasing competition, albeit not on price.²¹⁵

Assessment

The likelihood of efficiency justifications means that Canada's blanket per se prohibition of vertical resale price maintenance is not consistent with the economic analysis set out in Part I.²¹⁶ The existing Service Defence and the other defences to refusal to supply are consistent with the analysis in Part I but would need to be broadened and made more flexible if they are to fully accommodate efficiency rationales.²¹⁷ Efficiency defences would also have to be available for price maintenance generally, not just refusal to supply.

The existing provision is also deficient in that it does not impose a requirement that the person engaged in price maintenance have market power. In the absence of market power, customers unhappy with efforts at price maintenance can obtain supply elsewhere.

With respect to 61(6), where a customer of a supplier requires the supplier to refuse to supply a competitor, the customer may be seeking to protect itself against price competition. Nevertheless, whether there will be an anticompetitive effect will depend on the market power of the supplier and the effect in the downstream market. Consequently, even here, a per se treatment is not called for as a matter of economic theory in every case and the existing per se provision may inhibit efficient behaviour. It would be more consistent with the economic analysis in Part I to treat price maintenance on a rule of reason basis in the same manner as other vertical restraints under the Act.²¹⁸

Analysing price maintenance under the abuse of dominance provision provides some prospect for taking these considerations into account. Market power and a consideration of competitive effects are necessary elements of abuse. In assessing anticompetitive effects, the Tribunal would have to develop an approach to determining the relevance of the interests of firms in being free from attempts to get them to raise their prices. Some of the issues associated with dealing with price maintenance under section 79 are discussed in the next section.

The prohibition of horizontal price maintenance arrangements under section 61 is appropriate. Dealing with horizontal price maintenance under a per se rule, however, would appear to undermine the operation of the conspiracy provision, which subjects price fixing to a competitive effects test. An assessment of the relative merits of the two approaches is beyond the scope of this study.

Abuse of Dominance

General Discussion

The abuse of dominance provision was introduced into Canadian competition law in 1986 to replace the criminal monopoly provision.²¹⁹ The purpose of the provision is not to address the fact of structural dominance in a market, but to provide relief where dominance has been used to abuse the interests of consumers or producers.²²⁰ While the old monopoly provision and the provisions prohibiting price discrimination, predatory pricing, and resale price maintenance create criminal offences under the Competition Act, the provisions dealing with abuse of dominant position provide for civil review by the Competition Tribunal applying the civil standard of proof.²²¹

The Competition Tribunal has the power to prohibit dominant firms from engaging in anti- competitive activity in some circumstances. If a prohibition would not be effective to restore competition, the Tribunal may make alternative orders as are necessary to overcome the effects of anticompetitive acts, such as to require firms to take specific actions, including asset or share divestitures.²²²

Section 79(1) provides as follows:

• Where, on application by the Commissioner, 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.

The threshold requirement for the application of section 79 is that a firm be dominant. This is captured in section 79 by the requirement that a firm "substantially control a class or species of business throughout Canada or any part of Canada." The courts have held that, in order to apply this rather vague criterion, it is necessary to first define the product and geographic market.²²³ In order to define the relevant product market, the Tribunal has looked to such factors as direct and indirect evidence of substitutability and functional interchangeability of products, trade views on what constitutes the same product and the costs of switching from one product to another.²²⁴ The Tribunal has defined the relevant geographic market by reference to the boundaries with which competitors must be located if they are to compete with each other and where prices tend toward uniformity. The Tribunal has recognized that the definition of the market will have a significant impact on any conclusion regarding the effect of the dominant firm's behaviour on competition.²²⁵ In general, the more broadly the market is defined, the less likely it is that firm’s behaviour will be found to substantially lessen competition.

Once the market is defined, the degree of control by the allegedly dominant firm must be assessed. "(S)ubstantial control" has been equated with market power, meaning that the allegedly dominant firm has the ability to maintain prices above competitive levels for a considerable period.²²⁶ The primary indicators of market power are market share and barriers to entry.²²⁷ High market share alone will give rise to a presumption of dominance.²²⁸ In Laidlaw, the Tribunal stated that dominance would not be presumed where market share is below 50 per cent. The Tribunal has yet to deal with a contested claim of dominance where the allegedly dominant firm has a market share lower than 85 per cent.²²⁹ The 50 percent threshold is higher than the 35 per cent threshold set in the Merger Enforcement Guidelines²³⁰ and the Predatory Pricing Enforcement Guidelines. With respect to barriers, the Tribunal will consider sunk costs and economies of scale, as well as competition and other barriers. Sunk costs or economies of scale on their own are likely to be regarded as insufficient.²³¹ The Tribunal will also consider the number of competitors, their relative market shares and whether there is excess capacity in the market.²³² Notwithstanding the guidance provided by the Tribunal in past cases, predicting when the Tribunal will find dominance often will be difficult.

Once dominance is established the Tribunal must determine that the dominant firm has engaged in a practice of anticompetitive acts which has had, is having or is likely to have the effect of preventing or lessening competition substantially. Section 78 of the Competition Act lists a number of anti-competitive practices which the Competition Tribunal may find to constitute abuse. The list is not exhaustive and, in several cases, acts outside those specified in section 78 have been found to be abusive.²³³

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

Examples of Anticompetitive Acts Listed in Section 78

Subjective intent is not required in order for a practice to be anti-competitive under section 79.²³⁴ Nevertheless, for all acts listed in section 78, the Tribunal must find that the alleged abuser “intended” to act in an anticompetitive manner.²³⁵ This means an intention to cause some predatory, exclusionary or disciplinary effect on a competitor. Intent may be established by direct evidence or may be inferred from the circumstances.²³⁶ Indeed, the Tribunal has gone so far as to state that parties are deemed to intend the effects of their acts, if they cannot provide evidence to the contrary.²³⁷ The Tribunal has also considered the existence of an economic or business explanation as very important in determining whether a practice is anticompetitive, but the existence of a legitimate business rationale, alone, is not sufficient to justify an anticompetitive practice.²³⁸

If the Tribunal finds that particular actions are abusive, it must go on to find that they constitute a “practice” of abuse. The Tribunal has held that a practice may consist of anything more than an isolated act or acts and that different anticompetitive acts could together constitute a practice.²³⁹

Finally, the Tribunal must ascertain whether the practice “has had, is having, or is likely to have the effect of preventing or lessening competition substantially.” In general, the Tribunal will find a substantial lessening of competition where the anticompetitive acts of the dominant firm preserve or add to the dominant firm's market power.²⁴⁰ In particular, the Tribunal will ask whether the action creates or strengthens barriers to entry²⁴¹ as well assessing the magnitude of this effect.²⁴² In NutraSweet and Nielsen the Tribunal indicated that a sort of proportionality test must be applied as well. The more dominant a firm is, the smaller will be the required lessening of competition for an abuse to be found.²⁴³

The Tribunal must also give consideration to the possibility that the practice is a result of “superior competitive performance.” It must not punish firms who achieved their success through fair competition in the marketplace.²⁴⁴ The Tribunal noted in NutraSweet that no provision directs it to take into account efficiencies associated with a dominant firm’s abusive behaviour.²⁴⁵ In Neilsen and Tele-Direct, however, the Tribunal indicated that efficiencies are relevant to determining whether an act is anticompetitive.²⁴⁶

Access to relief under section 79 is limited in several ways. Section 79(5) expressly carves out the exercise of an intellectual property right. Under section 79(6), a three year limitation period is imposed for applications to the Tribunal and section 79(7) provides that no application may be made under section 79 if proceedings have been commenced under the conspiracy provision (section 45) or the mergers provision (section 92).

Application to Anticompetitive Pricing

The types of behaviour referred to in subsections (a), (c), (d) and (i) of section 78 all relate to pricing. More generally, price manipulation may be used by a dominant firm in a wide variety of ways to discipline, deter or eliminate competitors. In the abuse cases so far, however, pricing issues have played a relatively small role.

One of the anticompetitive acts alleged in NutraSweet was predatory pricing. Although, ultimately, the Tribunal did not find evidence of predation it made several comments which will undoubtedly inform the manner in which predation will be dealt with in future cases.²⁴⁷ First, the Tribunal accepted that predation could be an anticompetitive act under section 79 but suggested that the specific reference in section 78(i) to sales below acquisition cost would make it difficult to assert abuse against a manufacturer. The Tribunal noted that only acquisition costs were relevant not other costs such as overhead and distribution. In considering how predation allegations should be addressed under section 79, the Tribunal endorsed the Areeda-Turner test under which pricing below marginal cost is deemed predatory. As discussed above, the Tribunal also noted, as do Areeda and Turner, that average variable cost is a reasonable proxy for marginal cost only so long as the alleged predator has excess capacity. Where the predator is operating at full capacity, average total cost is a better proxy because of the necessity to expand production facilities to increase production.

The Tribunal indicated that predation is not a rational strategy unless there is some prospect of recoupment and accepted that a firm may signal an intention to predate in one market by predatory activity in another.²⁴⁸ Recognition of this possibility, discussed in Part I, suggests a greater scope for predatory behaviour because it reduces the costs and enhances the prospects of recoupment.²⁴⁹

In Tele-Direct, price discrimination by the dominant firm which had the effect of discriminating against customers using advertising services consultants who competed with the dominant firm was found to be an indicator of market power.²⁵⁰ The Tribunal did not find that price discrimination was an abuse of dominance.

Comparison with U.S. and European Union

United States

The abuse of dominance provision has some similarities to the monopolization offence under section 2 of the Sherman Act. Maintaining monopoly power through anticompetitive acts and attempting to gain monopoly power through anticompetitive acts where there is a dangerous probability of success are both offences. Monopoly power does not mean 100 per cent of a market. It is sufficient if the alleged monopolist has enough market power to control price and exclude competitors. Typically, this is shown by high market shares, evidence of barriers to entry and certain kinds of behaviour, such as price leadership. In this context, “superior skills, foresight and industry” have been recognized as legitimate bases of market power, as in section 79(4).²⁵¹

If monopoly power is found, it is necessary to show that the monopolist willfully engaged in anticompetitive acts to maintain monopoly power. This may include other conduct addressed on a per se or rule of reason basis under antitrust law and, generally, any exclusionary acts which are substantially enhanced or made possible by the possession and exploitation of monopoly power. The quality of the acts will be assessed on the basis of whether the acts, as a whole, have impaired competition in an unreasonably restrictive way.²⁵²

With respect to attempts to monopolize, the analysis is similar. A court must find an intent to monopolize, but intent is typically inferred from anticompetitive acts used to gain monopoly power. The dangerous probability of success of a monopolization strategy is determined largely by reference to the putative monopolist’s market share as well as barriers to entry and the degree of competition in the market.²⁵³

The two main differences between the Canadian abuse provision and section 2 of the Sherman Act are that the Sherman Act creates a criminal offence and addresses efforts to become dominant, not just the behaviour of an already dominant firm. Also, as with other U.S. offences, civil liability may also arise under the Clayton Act.

Europe

As noted above, Europe has an abuse of dominance provision. As in Canada, dominance has been equated with market power, defined as the ability to prevent effective competition and to behave, to an appreciable extent, independently of competitors, customers and consumers.²⁵⁴ In order to make such an assessment, a wide range of factors is considered, the same factors as would be taken into account in Canada: market share, barriers to entry and conduct by the allegedly dominant firm. Unlike the approach in Canada and the United States, however, there has not tended to be a specific analytical framework employed in Europe. Also, there is no effect on competition test in Article 82. In determining whether dominance has been abused, factors other than harm to competition are considered including fairness and the entitlement of businesses to be free from coercion by a dominant firm.

Assessment

Dealing with anticompetitive pricing practices under the abuse provision has several advantages. Consistent with the economic analysis set out in Part I, for enforcement action to be taken the perpetrator must have market power and the effect of the alleged anticompetitive acts on competition must be assessed. More than a per se regime, the abuse provision allows for a case by case analysis of behaviour which is sensitive to the specific factors at play in a particular industry. It permits the Tribunal to look in a holistic way at the aggregate of anticompetitive acts, which may include more than pricing behaviour, in a way that the narrow criminal provisions do not. This ability will become increasingly important as the structure of industries change in different ways in response to the challenges of the new economy, including increased non-price competition.

The structure of section 79 means that the Tribunal will be able to work out the manner in which competition is being threatened and how it may be encouraged most effectively in particular cases. The Tribunal may make the complex assessments regarding the nature and extent of market power in the new economy where industry specific factors, such as innovative activity, network effects may operate. These factors will be relevant also to assessments of whether acts are anticompetitive and their effect on competition. Finally, in making decisions regarding allegations of abuse, the Tribunal may make the delicate tradeoffs that may be required to ensure between the different dimensions of the purpose clause of the Act are fulfilled. The Tribunal will have the difficult task of assessing economic efficiency and deciding to what extent considerations other than economic efficiency are to be taken into account in the context of particular cases.

Proceeding with pricing cases under section 79 does have disadvantages. Because of its market power and competitive effects test, section 79 is much less predictable and certain than the current price discrimination and price maintenance provisions. Given the uncertainty currently surrounding the predatory pricing provision, little would be lost, however, by considering predation under section 79. This lack of predictability will be offset in some significant number of cases by the operation of the market power requirement itself since section 79 does not apply to the behaviour of the large number of firms without market power.

As well, a range of questions arise when one contemplates dealing with pricing cases under section 79. Some commentators have questioned whether the provision can be applied easily to anticompetitive acts in the context of vertical relationships, such as price maintenance and price discrimination.²⁵⁵ In price discrimination and price maintenance, any anticompetitive effect is likely to be in a market downstream from the market in which the dominant firm is acting. There is, however, no requirement in section 79 that the anticompetitive acts by the dominant firm lessen competition in the same market in which it is dominant.²⁵⁶ Consequently, lessening competition in the market in which someone buying from the dominant firm sells could be taken into account.

While section 79 could apply to anticompetitive pricing in vertical context, the list of anticompetitive acts in section 78 suggests that addressing vertical anticompetitive acts is not the primary purpose of section 79. Perhaps more significantly, actually doing so would require resolving some new interpretive issues before one could confidently suggest that section 79 would be an effective tool. For example, what would be the appropriate market share threshold for market power? Would it be the 50 per cent, referred to in previous abuse cases, the 35 per cent threshold, referred to in the Predatory Pricing Enforcement Guidelines, or some other threshold? Are the determinants of market power the same?

More specifically, the Tribunal would have to develop an analytical framework for assessing when price discrimination and price maintenance are anticompetitive acts. While the Tribunal would be free to do so without the constraints imposed by the existing criminal provisions, the economic analysis in Part I illustrates that doing so is not straightforward. To the extent that the Tribunal were to consider the desirability of traders to be free of coercion in the market place where such considerations conflict with economic considerations of efficiency, its task would become still more complex.

Considering the effect on competition in vertical pricing cases also requires some thought. In price discrimination and price maintenance cases, factors affecting the availability of alternative sources of supply may have to be taken into account. Where price discrimination or price maintenance by a dominant supplier affects only one or a few firms out of many, will there be a basis for finding a substantial lessening of competition? Based on previous Tribunal jurisprudence, Musgrove has suggested that, in its decisions to date, the Tribunal has been willing to act on relatively minor exclusionary effects by firms with very high market share and has focussed on the effect of exclusionary effects on existing market participants rather than barriers to entry.²⁵⁷ Will this approach have any application to vertical pricing practices? To be specific, will the Tribunal be more concerned about price discrimination and price maintenance, even if it only affects a few firms, where the supplier has a very high market share?

An analytical framework would need to be created to deal with predation cases as well, though dealing with predation is more like the work of the Tribunal in its cases to date. The Tribunal’s comments in the NutraSweet case may form the basis of such a framework. Also, section 79 already includes a market power requirement consistent with the Predatory Pricing Enforcement Guidelines and the economic analysis in Part I. Nevertheless, the Tribunal would have to consider how it would adapt its analysis to predation cases. While market definition and market power in the Predatory Pricing Guidelines is defined by reference to the tests in the Merger Enforcement Guidelines, the Tribunal has adopted different tests. As well, the Tribunal’s conception of market power would have to take into account the strategic barriers to entry possibly associated with predation cases, including signalling and reputation effects, discussed in Part I. In assessing the alleged predator’s pricing as an anticompetitive act, the Tribunal would need to more fully elaborate its approach to cost/price comparisons, and consider the relevance of intent to predate.

Finally, it is not clear whether the remedies which may be granted under the abuse provision are suitable in pricing cases. The Tribunal has indicated that it is reluctant to grant remedies directed at pricing practices.²⁵⁸ The Tribunal may be willing to prohibit price discrimination and price maintenance, since such an order would not amount to regulating prices and could be readily monitored. It is less obvious that it would be willing to order a firm to stop predating, since doing so would be tantamount to price regulation and assessing whether the predator is in compliance would be almost as complicated as finding predation in the first place.²⁵⁹

In light of all these issues, a number of Tribunal decisions will be required before the manner in which the abuse of dominance provision operates in relation to pricing cases would be well understood.

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