VanDuzer Report - Part 3

Enforcement of Competition Act Provisions by the Bureau

Introduction

This part of the report describes the Competition Bureau’s enforcement of the provisions in the Competition Act dealing with anticompetitive pricing practices. A brief overview of the process by which the Bureau deals with complaints is provided followed by a statistical profile of the Bureau’s enforcement experience. The profile consists of detailed statistics for all complaints dealt with by the Bureau over the five (5) year period beginning April 1, 1994 and ending March 31, 1999 (the “Review Period”)²⁶⁰ which concerned price discrimination, predatory pricing or price maintenance. Some observations based on the extensive interviews conducted by the authors with Bureau staff and selected stakeholders are also offered. Finally, in light of these statistics, the Bureau’s enforcement criteria are assessed and some conclusions are drawn regarding the effectiveness of the Bureau’s enforcement activities.

Complaints Process

Complaints are received by the Competition Bureau in a variety of ways through the Bureau’s Information Centre, including telephone calls, letters addressed to the Bureau and email through the Bureau’s Web site. When the Information Centre receives a complaint that may relate in any way to the Act, it is entered in the Bureau’s computer filing system (called the “tracker”) and referred to the one of the Bureau’s Branches, where it is assigned to a commerce officer. Pricing complaints are dealt with by either the Criminal or Civil Branch.

Complaints are also commonly referred to the Bureau by members of parliament, government ministers or officials in other branches of government who have received a complaint. The Competition Act provides that the Commissioner may self initiate an investigation in circumstances where an issue has come to the Commissioner’s attention. Finally, there is a formal procedure in section 9 of the Act under which any six (6) residents may make a complaint to the Bureau. When this process is used, a formal inquiry must be initiated by the Commissioner.

Bureau commerce officers are responsible for making a preliminary assessment of each complaint received. Typically the officer begins by contacting the complainant and follows up by collecting and analysing information relevant to the complaint. In cases where the responsible commerce officer determines that the complaint does not disclose any basis for proceeding under the Act, the officer may terminate the investigation. If, after a preliminary assessment, it appears to the officer and his or her supervisor that there is a basis for a more thorough review, a complaint is designated as a “project” and further work is done, including applying the case selection criteria developed by the Bureau, gathering more complete information and identifying and assessing the strength of evidence. In some circumstances, an opinion may be sought from the Economics and International Affairs Branch, either on what economic evidence is needed or on how to develop an economic theory of the case. Advice may be sought as well from the Department of Justice regarding particular legal issues.

In light of the results of the application of the case selection criteria and this more comprehensive analysis, a decision is made as to whether the case has sufficient merit to justify going forward to the next stage, the commencement of an inquiry by the Commissioner. Once an inquiry has been commenced the Commissioner can use his formal investigative powers, including seeking an order directing a person to be examined under oath²⁶¹ or a warrant authorizing the searching of premises and the seizing of documents.²⁶² Typically at the inquiry stage a team is set up to deal with the complaint, though this is often done earlier.

As noted, an inquiry must be initiated when a six (6) resident complaint is received. The Commissioner may initiate an inquiry in other circumstances where he or she believes on reasonable grounds that an offence has been or is about to be committed or that grounds exist for the Tribunal to make an order in relation to one of the provisions in the civil part of the Act.²⁶³ The Minister of Industry may also direct the Commissioner to inquire as to whether either of these circumstances exists.²⁶⁴

At any stage of an inquiry, the Commissioner may refer a matter to the Attorney General of Canada for consideration as to whether an offence has been committed under the Act.²⁶⁵ The Attorney General must then decide whether to prosecute.²⁶⁶ In relation to a complaint under the civil provisions, the Commissioner may make an application for relief to the Tribunal.²⁶⁷

Alternatively, at any stage, the investigation of a complaint may be terminated or some kind of alternative case resolution (“ACR”) reached. An ACR may take various forms from a simple information visit by Bureau staff to explain the Act to formal undertakings monitored by the Bureau and consent prohibition orders. If an inquiry has been commenced, only the Commissioner may discontinue it. On discontinuing the inquiry, the Commissioner must make a report to the Minister of Industry showing the information obtained and the reason for discontinuing the inquiry as well as advising the complainants and giving them the grounds for the decision to discontinue.²⁶⁸ If no inquiry has been commenced, the Bureau may decide to terminate the investigation or seek an ACR at any stage.

Statistical Record of Enforcement Experience

The following tables provide a profile of the manner in which all complaints received and completed within the Review Period were dealt with. With the assistance of the Bureau staff, all electronic records on the Bureau’s tracker system and all physical files relating to complaints made and disposed of within the Review Period which were considered under the main criminal provisions dealing with price discrimination, predatory pricing and price maintenance (sections 50 and 61) and all complaints relating to pricing dealt with under section 79, the abuse provision, were identified. The profile is based on our review of all relevant electronic records and physical files within the Review Period.

Overview of Enforcement During Review Period - All Pricing Complaints*

	Price Discrimination	Predatory Pricing	Price Maintenance	TOTAL
Complaints**(including projects)	88 (9%)	382 (41%)	461 (50%)	931 (100%)
Projects	13 (20%)	27 (40%)	26 (40%)	66 (100%)
Inquiries	5 (26%)	7 (37%)	7 (37%)	19 (100%)
Formal Enforcement Proceedings	0	0	3 (100%)	3 (100%)
Alternative Case Resolutions	4 (4%)	9 (10%)	77 (86%)	90 (100%)

* Includes all complaints dealt with under the relevant criminal provisions and complaints under the abuse of dominance provision relating to pricing. Complaints in the tracker not identified by section were not reviewed, though it is likely that some related to pricing. That no section number was identified, however, suggests that complaints did not involve the elements of the identified anticompetitive pricing practices: price discrimination, predatory pricing and price maintenance.
** In compiling these statistics, we attempted to avoid double counting cases considered by both Civil Branch and Criminal Branch.

Even viewed at this level of aggregation, some observations may be made regarding the Bureau’s enforcement activities during the Review Period. Most significantly, very few cases rose to the level of the more intensive review characterizing the project stage. Of the complaints which did become projects, in fewer than 1/3 was an inquiry initiated and formal enforcement proceedings were extremely rare. By contrast, ACR’s were successfully used in about 10% of complaints. Most complaints (88%) were terminated by commerce officers and their supervisors. The critical role played by commerce officers underlines the importance of ensuring that commerce officers have the appropriate tools to differentiate complaints that have merit from those that do not.

Price maintenance was the most frequently complained about anticompetitive pricing practice, though it was fairly closely followed by predatory pricing. Price maintenance was also the most likely to be the subject of the Bureau’s use of formal enforcement proceedings, though the number of occasions on which formal enforcement occurred was very small even in price maintenance cases.

With respect to price maintenance, the rare use of formal enforcement during the Review Period represents a significant change in enforcement policy from years before the Review Period. Stanbury’s study found that formal enforcement actions against price maintenance reached a high of 58 in the five year period from 1981 to 1985, falling to 38 from 1986 to 1990 and 10 from 1991 to 1995. As discussed in more detail below, formal enforcement activity has been largely replaced by some form of alternative case resolution.²⁶⁹

In contrast to price maintenance, the number of formal enforcement actions with respect to price discrimination and predatory pricing has never been substantial. That there were none during the Review Period is consistent with earlier enforcement activity.²⁷⁰ Moreover, unlike price maintenance complaints, the proportion of price discrimination and predatory pricing complaints resolved through alternative case resolutions during the Review Period was very small.

Notwithstanding the pervasiveness of price discrimination as described in Part I, the number of price discrimination complaints is a relatively small proportion of the total. There may be several of explanations for this. The Price Discrimination Enforcement Guidelines are very specific regarding how the Bureau interprets the price discrimination provision, section 50(1)(a) and, in light of this high degree of predictability, businesses are able to implement compliance programs successfully. Some industry organizations interviewed for this study suggested that they were able to obtain compliance with the provision by advising the businesses with which they dealt of its requirements. Consequently, one must be careful about concluding that the provision is ineffective simply based on the relatively small number of complaints.

Another interesting feature of the statistics on price discrimination is that, of the small number of complaints, there would seem to be a disproportionately high number of projects and inquiries. This apparent anomaly may be explained in part by the fact that all five (5) complaints in which inquiries were commenced were initiated using the six (6) resident process described above under which the Commissioner is obliged to commence an inquiry.

Disposition of Price Discrimination Complaints During the Review Period *

Disposition of Complaint		Civil Complaints		Criminal Complaints		TOTAL
		Complaints	Projects	Complaints	Projects
Inquiries		-	-	1	4	5
Enforcement Proceedings		-	-	-	-	-
Alternative Case Resolutions		-	1	1	2	4
Terminated (Total)		3	5	71	5	84
B A S I S	Withdrawn	-	1	17	2	21
	Insufficient Information	1	-	4	1	6
	Not Related to Act	-	-	4	-	4
	Failure to meet Requirements of Act	1	3	39	3	46
	Other**	1	1	7	-	9

*1994-95 to 1998-99.
** Other includes primarily situations in which the reason for termination was not clear.

Disposition of Predatory Pricing Complaints During the Review Period*

Disposition of Complaint		Civil Complaints		Criminal Complaints		TOTAL
		Complaints	Projects	Complaints	Projects
Inquiries		-	2	-	4	6
Enforcement Proceedings		-	-	-	-	-
Alternative Case Resolutions		3	1	3	2	-
Terminated (Total)		23	12	324**	12	371
B A S I S	Withdrawn	4	5	84	4	103
	Insufficient Information	2	2	48	1	52
	Not Related to Act	2	-	19	-	21
	Failure to meet Requirements of Act	13	5	200	7	225
	Other***	2	-	57	-	59

*1994-95 to 1998-99.
**The total number of criminal complaints terminated is less than the total bases of termination indicated because some complaints were terminated on multiple bases.
*** Other includes primarily situations in which the reason for termination was not clear.

Disposition of Price Maintenance Complaints (including refusal to supply) During Review Period*

Disposition of Complaint		Civil Complaints		Criminal Complaints		TOTAL
		Complaints	Projects	Complaints	Projects
Inquiries		-	-	-	7	7
Enforcement Proceedings		-	-	-	3	3
Alternative Case Resolutions		1	-	69	7	77
Terminated (Total)		19	-	344**	18	381
B A S I S	Withdrawn	3	-	90	5	98
	Insufficient Information	4	-	121	2	127
	Not Related to Act	8	-	93	-	101
	Failure to meet Requirements of Act	-	-	5	7	12
	Other**	4		41	4	49

*1994-95 to 1998-99.
**The total number of criminal complaints terminated is less than the total bases of termination indicated because some complaints were terminated on multiple bases.
*** Other includes primarily situations in which the reason for termination was not clear.

Several observations may be made regarding this more detailed breakdown of pricing cases. The Civil Branch deals with relatively few pricing cases. This is especially true in relation to price maintenance. This result is consistent with the comments of most officers who indicated that pricing cases likely would go first to Criminal Branch unless there was some clear suggestion that the perpetrator was dominant and there were additional anticompetitive acts. As discussed in Part II, section 79 could be used to deal with pricing practices. Looking at the complaints dealt with in the Review Period suggests that this did not occur during the Review Period in a significant way, perhaps owing to the uncertainty surrounding how precisely the abuse provision would be applied. It may also be, simply, that, in most pricing complaints, the allegation did not involve a dominant firm.

If one eliminates the complaints which were withdrawn, where insufficient information was provided or which were not related to the provisions of the Act, it is possible to get a sense of the number of cases rejected on the merits during the Review Period: price discrimination - 55 out of 84, predatory pricing - 284 out of 371 and price maintenance - 61 out of 381. Even these figures may be somewhat inflated since they include all the cases designated as “other”. For most of these cases, it was not possible to discern the disposition of the complaint from the Bureau’s records. Nevertheless, in at least some of these cases, undoubtedly, a conclusion was reached that there was no substantive basis for going forward with the complaint. One striking feature of these figures is how few price maintenance cases were rejected on the merits. This may be explained in part by the large number that were found not to be related to the provisions of the Act (101 out of 381), as compared to price discrimination (4 out of 84) and predatory pricing (21 out ouf 371), where most terminated cases were rejected on the merits. The difference may reflect the very specific requirements for price maintenance as compared to the requirements for predatory pricing expressed in the Predatory Pricing Enforcement Guidelines. Allegations regarding market power and price/cost comparisons will almost always be contestable, whereas an assessment of whether the elements of price maintenance are present is relatively straightforward. The differences in the statistics for price discrimination and price maintenance cannot be explained in this way because the elements of price discrimination are relatively specific as well.

Complaints and Projects by Industry During Review Period*

Industry	Percentage of Total Complaints (including projects)	Percentage of Total Projects
Gasoline	16.7%	7.5%
Groceries	1.5%	9.1%
Concrete	1.1%	3%
Telecommunications	2.9%	18%
Waste	2.5%	9.1%
Other	75.3%	53.3%**

*1994-95 to 1998-99.
**No other industry accounted for more than 2% of projects.

As illustrated in the table above, complaints are received from a wide variety of industries. With the notable exception of gasoline, no single industry appears to be the source of a disproportionate number of complaints. When one examines the incidence of projects by industry, however, there are certain industries in which there are serious enough concerns that projects were commenced in a significant number of cases: gas, groceries, telecommunications and waste, together accounting for almost 50% of total Bureau projects relating to pricing. It is also notable that the overwhelming significance of gasoline in complaints did not follow through into projects, where groceries, telecommunications and waste were all more frequently the subject of the more thorough investigations to which projects are subject.²⁷¹

Other Observations on Enforcement Practice

It is possible to add several observations based on the review of project files and interviews with Bureau personnel. With one exception, the Bureau has not attempted to create specialized expertise related to pricing complaints. The exception is in the area of price maintenance. One commerce officer has developed a specialization in dealing with these cases, extensively and successfully employing alternative case resolution strategies.

Certain officers have acquired extensive experience in industries in which concerns about pricing problems appear to be endemic, such as gasoline, telecommunications and waste. Recognition of the experience and insight of officers with such industry specific expertise means that they tend to be involved as new complaints reach the Bureau within their areas. There is also increasing inter- branch cooperation to take advantage of such expertise, not only between Criminal and Civil Branches but between these branches and the Mergers Branch. This may take the form of information sharing, consultation or even temporary secondment of personnel. So far such cooperative leveraging of expertise has not been institutionalized to a significant extent, though several commerce officers have been designated as responsible for dealing with the high volume of gasoline complaints, most of which relate to pricing.

Finally, all officers interviewed in the Criminal Branch indicated that they rigorously applied the Predatory Pricing Enforcement Guidelines and the Price Discrimination Enforcement Guidelines in their analysis of cases. This conclusion was confirmed by the review of tracker records and project files. Indeed, even in pricing cases dealt with under section 79, where the complaint related to predation, the Predatory Pricing Enforcement Guidelines tended to inform the application of the statutory framework.

Case Selection Criteria

Introduction

Both the Criminal Branch and the Civil Branch, as well as the other branches at the Bureau, have adopted case selection criteria to ensure that competing priorities are evaluated in a systematic way and that resources within each branch are efficiently allocated. Since 1996, in an effort to create a system to facilitate the assessment of competing priorities across branches and ensure that total Bureau resources are allocated efficiently, the criteria used in each branch have had a common core of identical factors. Under each core factor, each branch uses additional supplementary factors to reflect considerations unique to its operations. Numerical weights are given to each factor. In applying the factors to a particular case, a score is given in relation to each factor reflecting its significance in that case. The total score is used to assess the desirability of proceeding with formal enforcement action. The Bureau is currently undertaking a review to determine whether further harmonization of the case selection criteria across branches is possible and desirable.

As noted above, the application of the criteria, which requires a fairly complex analysis, takes place around the time the Bureau makes the decision to make a complaint a "project" and to subject it to a more thorough investigation. In making this decision, the results of the application of the criteria are not followed mechanistically. The criteria are designed as an aid to management decision making, not a substitute for management discretion.

In an era of continually shrinking resources, it is essential for any government organization to put in place systems which will assist it to marshal its resources most effectively to accomplish its mandate.²⁷² In the case of the Bureau, its responsibilities have increased as deregulation has moved a greater proportion of business activity into the private market place and as a consequence of the major amendments to the Act in 1986 and in 1999. As well, internal reorganization, including the establishment of a permanent unit responsible for amendments to the Act, has reduced the resources available for enforcement activity. Its expanding responsibilities have not been accompanied by large increases in the Bureau's budget.²⁷³ In response to its expanded responsibilities and constrained resources, the Bureau has established priorities in its enforcement activity which are reflected in its case selection criteria.

For the purposes of this study, the question is whether the case selection criteria are appropriate in relation to the enforcement of the provisions of the Act dealing with anticompetitive pricing practices. This is a narrow focus. It does not permit us to address the general effectiveness of the criteria or the relative importance accorded to pricing practices as compared to the enforcement of other provisions of the Act. In the following sections, we describe, in general terms, the case selection criteria and how they deal with anticompetitive pricing complaints, followed by our assessment.

Description of Case Selection Criteria

The following overview of the case selection criteria used by the Bureau is based largely on the criteria applied by the Criminal Branch which are specifically adapted to address pricing cases. The factors in the Criminal and Civil criteria, however, are essentially the same, though they are sometimes allocated into different categories and assigned different weights. The common core of the case selection criteria consists of four (4) categories of factors:

1. Economic Impact
2. Enforcement Policy
3. Strength of the Case
4. Management Considerations

The economic impact of the alleged anticompetitive activity is considered by reference to several subcategories, including the following: what volume of commerce is affected; what is the market power of the person alleged to have engaged in an anticompetitive act (determined by reference to market shares and barriers to entry); are prices expected to rise, by how much and over what period; and the length of time that practice has been engaged in. Under the Civil criteria, the effect on any aspect of competition, not just the effect on price, is taken into account.

With respect to enforcement policy considerations, again there are a number of subcategories of factors which are taken into account. The only pricing practice addressed in this study which is accorded priority in enforcement under the Criminal criteria is horizontal price maintenance. Under the Civil criteria, abuse of dominance is a priority, though, as noted above, pricing cases typically have not been dealt with under section 79. Several other factors which point in favour of formal proceedings are (1) the deterrence value of a formal enforcement action, (2) the jurisprudential value of a decided case, (3) whether the alleged perpetrator has a history of engaging in anticompetitive acts, (4) whether the behaviour is covert and (5) the geographic scope of the offence. Under a separate category, a case also receives points, however, if the matter can be resolved through an ACR. Finally, "public sensitivity" in the sense that the case is likely to attract significant public attention also leads to a higher score.

The third category in the Criminal criteria, strength of the case, refers to specific offences. In all cases, the strength of both documentary evidence and witnesses are assessed. For predation, the only issues in the criteria are (1) the market power of the alleged predator, based on market shares, their stability over time, barriers to entry and the existence of other large rivals, (2) whether prices are less than average variable cost and (3) whether low pricing is a policy. The analysis for price maintenance is much more straight forward reflecting the degree of certainty in the law. The only issue is the evidence on the existence of an attempt to maintain prices by "agreement, threat, promise or other means," or of a refusal to supply because of low pricing. No reference at all is made to price discrimination though the Bureau's files disclose that the case selection criteria are applied to price discrimination cases. The Civil criteria refer only to the likelihood that a case will be successful.

Management considerations, the fourth category, involves a consideration of the financial resources and investment of personnel time needed to bring the case to its anticipated conclusion. The longer a case is likely to take and the more financial and human resources that will be required, the lower the score on this factor. The urgency of proceeding with the case is a basis for an increased score.

Application to Pricing Practices

From the interviews conducted for this study, it is clear that the case selection criteria are used as a guide to management decision making not a substitute. Often, it was suggested that if a case was considered to have sufficient merit, it could be proceeded with notwithstanding a low score. It was also suggested that the criteria were most important in the rare situation when several cases arose at the same time and resource constraints would not permit the Bureau to pursue them all. Consequently, while as discussed below, there are several aspects of the case selection criteria which may tend to produce low scores when applied to pricing cases, it seems that they would not necessarily prevent a meritorious case from proceeding.

The most obvious aspect of the case selection criteria which would work against high scores in pricing cases as opposed to some other kinds of cases is that the only pricing practice addressed in this study which is identified as an enforcement priority is horizontal price maintenance. Other aspects of the case selection criteria would appear to have differential effects of pricing cases depending on the nature of the case.

With respect to market power, it may be expected that many price discrimination and price maintenance cases which have merit based on the provisions of the statute will not be favourably judged since market power is not required under the Act for these offences. The economic analysis in Part I suggests that market power is a necessary condition for most price discrimination and price maintenance to be anticompetitive so market power may be an appropriate consideration. Nevertheless, its application creates a gap between what the statute contemplates and what the Bureau does which does not occur where market power is expressly identified as an element of the regulated behaviour. With respect to predation, there is no statutory market power test either, but imposing market power as an enforcement criterion is consistent with the Bureau's Predatory Pricing Enforcement Guidelines. Market power is required under the abuse provision.

Geographic scope is another factor in the Criminal criteria which often will not be present in price discrimination or price maintenance cases, since our review of Bureau files disclosed that many such cases involve a single supplier and single customer. Our review suggests that it is likely to be rare in predation cases as well, most of which involved local markets. Geographic scope is not separately referred to in the Civil criteria.

The likelihood of success using an ACR approach is high in price maintenance cases but relatively low in price discrimination cases and predatory pricing cases based on the statistical profile above. This seems to have an ambiguous effect under the case selection criteria. Cases are scored higher if a prosecution or application to the Tribunal is thought to be needed based on the history of the perpetrator and the need for deterrence, in other words when an ACR is not feasible. At the same time, if an ACR is a reasonable strategy, this is also accorded points. The likelihood of a successful ACR would also result in a more positive score under management considerations, while contested cases taken all the way to a contested trial or application to the Tribunal would score very poorly. On balance, given the significant weight accorded to management considerations, it would appear that cases which are good candidates for ACR's are likely to score higher than cases which are not. This would seem to systematically favour price maintenance cases and disfavour predation cases, where the only enforcement options are a long drawn out trial or application to the Tribunal with heavy commitments in terms of the financial and human resources of the Bureau, including the hiring of outside experts. The effect on price discrimination is less clear. One would expect that a prosecution or application to the Tribunal in relation to price discrimination would be much more straight forward and therefore quicker and less expensive. On the other hand, the statistics on resolving price discrimination cases through ACR's show that the likelihood of resolving price discrimination cases thought ACR’s has been poor.

Price changes would seem to be very difficult to find in price discrimination and price maintenance cases since, only one person in the market may be adversely affected. By contrast, in predation as interpreted by the Bureau, the effect on prices is central to the analysis. By contemplating other anticompetitive effects, the Civil criteria are more permissive in this regard.

Regarding the strength of the case category, price maintenance cases are likely to be assessed either very favourably or very unfavourably, since the evidence on the narrow elements required to be met will be present or it will not. By contrast, the strength of evidence in a predation case will rarely be assessed in a highly favourable way. The elements will always be difficult to assess much less to prove. As well, there is no possibility to bolster the assessment of a predation case with evidence of intent to eliminate a competitor or to lessen competition substantially. Only evidence on the two dimensions of the two part test and the existence of a policy count. Indeed, the case selection criteria are more stringent than the Predatory Pricing Enforcement Guidelines in this regard because they only permit consideration of pricing below average variable cost. No comment may be made on the application of this factor to price discrimination because price discrimination is not mentioned.

Finally, the case selection criteria give more weight to cases where there is a large economic impact. Not only is the volume of commerce affected identified specifically, but also the geographic scope of the market, a proxy for economic impact is counted. As well, market power and public sensitivity may suggest economic importance. This approach means that cases are less likely to be brought forward which are meritorious in terms of the provisions of the Act if their economic impact is small.

Does the emphasis on the economic impact of anticompetitive behaviour in the case selection criteria limit access to relief for small businesses? The answer will depend on the circumstances. A small business hurt by anticompetitive activity may operate in a big market and, to the extent that a behaviour is widespread or engaged in by a dominant firm, the size of the victim complaining will not be an impediment. As well, where multiple complaints are made with respect to the same behaviour, the likelihood that the Bureau will proceed will be enhanced.

To the extent that the criteria do tend to limit small business access to relief in court or before the Tribunal, other types of relief may be available. Particularly where low volumes of commerce are at stake, the Bureau has tried to work toward ACR's, ranging from visits to the alleged perpetrator to advise it on the requirements of the Act, to more formal resolutions involving undertakings to the Bureau and monitoring. The Commissioner has promoted a continuum of case resolution strategies to provide faster, cost effective relief. As the statistics set out above indicate, this has been extremely successful in relation to price maintenance complaints, but much less so for price discrimination and predatory pricing. Finally, our review of project files examined disclosed substantial time and effort expended by Bureau officers on complaints in which the volume of commerce at stake was relatively small but where there was a serious issue on the merits, suggesting that small business complaints are taken seriously.

In sum, the case selection criteria include factors which will tend to both enhance and reduce the score of pricing cases, depending on the specific anticompetitive behaviour concerned. This is inevitable in the application of any general criteria to a range of different behaviours.

In relation to price discrimination and vertical price maintenance cases the low priority attached to enforcement and the significance given to the economic impact of the anticompetitive conduct under the case selection criteria may lead to lower scores. In the case of price maintenance, this negative effect may be significantly offset because of the likelihood and availability of ACR's which may improve scores as well as providing a meaningful alternative to prosecution. Also, meritorious price maintenance cases are likely to receive high scores on the strength of case criterion.

With respect to predation cases, several features of the Criminal criteria seem likely to reduce scores in most cases. Like price maintenance and price discrimination, predation cases also are not a priority and tend to be in local markets in which the volume of commerce may be low. As poor candidates for ACR's, the only option for resolving a predation case is likely to be a drawn out prosecution which will score poorly on the management consideration criteria. Given the analytical and evidentiary challenges associated with meeting the two part test, the restrictive cost/price comparison and the lack of recognition of intent evidence, predation cases are unlikely to score well under the strength of case criteria either.

The more flexible and open ended Civil criteria may not have the same limiting effects in cases of predation because the strength of case category plays a less significant role and in relation to price discrimination and price maintenance because a broader conception of anticompetitive effect is taken into account. Nevertheless, the overall structure of the Civil criteria are the same as the Criminal criteria and no specific priority is accorded to pricing cases. Consequently, there is no reason to expect dramatically different results in the application of the Civil criteria to pricing cases.

Assessment of Enforcement Experience

The statistical profile of Bureau enforcement activity tends to support the conclusion that the likely impact of the application of the case selection criteria to pricing cases will be that few cases will be the subject of formal enforcement proceedings. Whether this is a concern, however, depends upon several other considerations: (1) is the application of the case selection criteria along with the Bureau’s enforcement guidelines likely to result in accurate decisions regarding enforcement based on the considerations set out in Part I? (2) is a low level of enforcement activity appropriate given alternative uses of Bureau resources? (3) will the criteria result in sufficient formal enforcement activity?

• 1. Accuracy of Enforcement Decision Making

If the application of the case selection criteria and the Bureau’s enforcement guidelines are likely to result in accurate enforcement decisions, consistent with the economic analysis in Part I, then the limited use of formal enforcement powers would be less of a concern. Each type of anticompetitive pricing practice is discussed in turn.

Price Discrimination: The difficulty of making a strong economic case against price discrimination suggests that the Bureau should adopt a cautious approach to enforcement. The interpretive approach adopted in the Price Discrimination Enforcement Guidelines, for the most part, reflects such caution. A broad interpretation is given to the circumstances in which charging different prices to different customers should be permitted. Similarly, the factors in the case selection criteria focussing on whether the seriousness of anticompetitive effect show appropriate restraint. Neither the Guidelines nor the case selection criteria provide a fully developed analysis of when price discrimination is anticompetitive. As demonstrated in Part I, such an analysis is elusive. Nevertheless, the case selection criteria do focus on considerations which our economic analysis in Part I suggests should be relevant: market power, duration of the activity and its anticompetitive effect.

Predatory Pricing: The Predatory Pricing Enforcement Guidelines set out a framework for analysing predatory pricing which is generally consistent with economic theory though its application may lead to a narrower view of predation than current economic theory would suggest because of its relative lack of emphasis on strategic behaviour. The sections in the Criminal case selection criteria addressing the strength of predation cases do not improve on the Predatory Pricing Enforcement Guidelines and, in fact, narrow the inquiry. As a consequence, some cases which would meet the requirements of the Guidelines will rank poorly. This raises some concern regarding the effect of the criteria on the accuracy of enforcement decision making.

Price Maintenance: The sections in the Criminal criteria dealing with assessing the strength of case in price maintenance reflect the Competition Act provision but, in doing so, do not take into account possible efficiency justifications for price maintenance. The case selection criteria do require consideration of market power and anticompetitive effect, however, which may permit consideration of efficiencies. To this extent, the criteria appear to provide the basis for an accurate assessment from an economic point of view.

• 2. Priority to be given to anticompetitive pricing practices as compared to other Bureau Activities

Our review was focussed exclusively on the pricing provisions of the Competition Act. Consequently, it is impossible to pronounce on the appropriateness of the criteria in light of resource constraints and competing priorities. To do so, it would have been necessary to do a complete inventory of all the Bureau’s activities and assess their relative importance. Nevertheless, it is possible to ask whether the criteria focus on the aspects of anticompetitive pricing behaviour which indicate the magnitude of anticompetitive effects. In general, the answer is that they do. Market power, volume of commerce, geographic scope and public sensitivity will all be important indicators of the seriousness of the effect of the anticompetitive activity. The criteria also reflect some consideration of the egregiousness of the anticompetitive behaviour. In terms of enforcement policy, whether behaviour is covert and whether the perpetrator has a history of anticompetitive acts are factors adding weight to the case assessment.

• 3. Sufficiency of formal enforcement activity

Given our inability to assess competing priorities within the Bureau, we do not offer a conclusion on whether a sufficient number of cases is being brought. Nevertheless, it is possible to offer some observations. The statistics show that few cases have been pursued to resolution, except through ACR's in price maintenance complaints. The relative absence of formal enforcement proceedings raises several concerns regarding the certainty and, ultimately, the effectiveness of the law. More formal enforcement proceedings would force the courts and the Tribunal to progressively refine the law, making clear its appropriate application as well as signalling the seriousness of the Bureau’s intent to enforce it. More cases would also expose the weaknesses in the law which would, in turn, be an important catalyst for law reform. One might hope and expect that increasing certainty brought about by greater formal enforcement activity by the Bureau would encourage greater interest in private actions under section 36. To date the possibility of civil actions alleging violation of the criminal provisions has been little used.²⁷⁴

In the absence of formal enforcement proceedings, the efforts of the Bureau to clarify its interpretation of the law for enforcement purposes have been extremely useful. Indeed, enforcement guidelines have some major advantage over case law. Guidelines may be produced much more cheaply and may be written to address issues more comprehensively than an accumulation of decisions each of which deals with only a specific set of facts and may have limited application to other situations.²⁷⁵ Guidelines increase the likelihood of consistent and accurate decision making by commerce officers who make the difficult assessments of cases at the critical preliminary assessment stage. By disclosing a clear approach to enforcement, guidelines may facilitate ACR’s and, more generally, will ease the compliance burden for business.

Nevertheless, such an approach is subject to inherent limitations. Bringing some minimum number of cases is essential if the private sector is to regard enforcement activities as a credible threat and an incentive to comply with the law. This is not to suggest that the Commissioner’s substantial efforts to seek voluntary compliance are wrong headed. The investment in general education regarding the Competition Act and its enforcement, targeted information campaigns, advisory opinions, advanced ruling certificates with respect to proposed mergers are all useful strategies, especially in the face of constrained resources.²⁷⁶ At some point, however, formal proceedings are needed to demonstrate the seriousness of the Bureau’s intent to enforce the Act and to ensure that these voluntary compliance strategies are effective.

Also, guidelines are not binding on the Bureau, the courts or the Tribunal and are no defence to private actions under section 36. While enforcement action in relation to activities complying with Bureau guidelines may be practically unlikely, there is a residual risk of enforcement which impairs their reliability as compared to case law. This risk will be exacerbated to the extent that guidelines suggest interpretations which appear to be at odds with the statute.

As discussed in Part II there are several ways in which the Price Discrimination Enforcement Guidelines and Predatory Pricing Enforcement Guidelines adopt interpretations which stretch the provisions of the Act. In the case of Predatory Pricing Enforcement Guidelines, the elaborate two step test for predation has not been fully endorsed in the limited case law. As well, the Guidelines downplay of the role of intent and the significance of eliminating competitors both of which are referred to in the criminal predatory pricing provision. The Price Discrimination Enforcement Guidelines adopt interpretations regarding when terms are available to competitors and when a sale occurs which have been criticized as inconsistent with the statute.

When one examines the case selection criteria, one finds additional criteria not specified in the Act. As suggested above, most of these additional criteria may be justified either on the basis of the economic analysis in Part I or prudent management of limited resources. Nevertheless, by applying criteria to the enforcement of the Act in relation to pricing practices which are extraneous to the statute and tend to reduce the likelihood of enforcement action in pricing cases, both the Guidelines and the case selection criteria may give rise to several concerns. A disjunction is created between the expectations of people complaining to the Bureau about pricing practices and what the Bureau is prepared to deliver. This is most serious, in relation to price discrimination and predatory pricing, where the complete absence of formal enforcement actions opens the Bureau to the charge that it is choosing not to enforce the Act. This suggests either that the case selection criteria be revised so as to minimize impediments to bringing pricing cases and that the Guidelines be revised to more closely follow the Act or that the provisions be reformed to provide clearer direction for bureau enforcement policy. Either way, the result would be closer coincidence between what the law says and the Bureau’s enforcement policy.²⁷⁷

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Part II | Table of Contents | Part IV