VanDuzer Report - Notes

ENDNOTES

¹ Marketing practices are by far the most frequently complained about anti-competitive activity.

² Detailed statistics are provided in Part IV.

³ Bill C-235 passed first reading on October 6, 1997 and was referred to the Standing Committee on Industry. On April 15, 1999, the Committee decided to report the Bill to the House of Commons without the clauses or the title. The Bill is numbered C-201 in the second session of the 36th Parliament.

⁴ R.S.C. 1985, c. C-34, as amended by R.S.C. 1985, c. 27 (1st Supp.); R.S.C. 1985 c. 19 (2nd Supp.); R.S.C. 1985, c. 34 (3rd Supp.); R.S.C. 1985, c. 1 (4th Supp.); R.S.C. 1985, c. 10 (4th Supp.); S.C. 1990, c. 37; S.C. 1991, cc. 45, 46, 47; S.C. 1992, cc. 1, 14; S.C. 1993, c. 34; S.C. 1995, c. 1; S.C. 1999, c. 2 . This had been previously held in the case law (e.g. Weidman v. Schragge (1912), 46 S.C.R. 1 at 4).

⁵ This view was recently expressed by the Commissioner of Competition, Konrad von Finckenstein, in his remarks to the Industry Committee on Bill C-235 (Standing Committee on Industry, April 15, 1999).

⁶ Tradeoffs may also be required, for example, between static efficiency and dynamic efficiency, low prices and richness of choices and present versus future terms of sales for consumers.

⁷ J.B. Dunlop, D. McQueen & M. Trebilcock, Competition Policy: A Legal and Economic Analysis (Toronto: Canada Law Book, 1987) at 20

⁸ Any attempt to provide a general analysis of anticompetitive pricing practices must start by stating clearly that there are two broad traditions of analysis in good currency (S. Martin, Advanced Industrial Economics (Oxford: Blackwell, 1993)). The first one may be characterized as mainstream industrial economics generally associated with the structure- conduct-performance framework as it has evolved and has been enriched over the last fifty years. This is an intellectual tradition that has focussed on practices and markets that cannot easily be analysed by the standard textbook competitive model, and on the design of policies to provide timely correctives to such situations when they are socially costly. The second tradition may be characterized as based on the hypothesis that the model of competitive markets is sufficient to explain real-world phenomena.

These two traditions share most definitions and analytical tools, so one does not have to make an ideological decision ex ante. Our approach will therefore remain agnostic. Some have argued that empirical analyses might be able to discriminate between these two cosmologies. This is not the case. The sort of analyses that social scientists are capable of generating are at best based on “weak” causal reasoning. Despite the attractiveness of “strong” causal thinking as displayed by the scientific approach, one must usually be satisfied with “weak” theories. Empirical evidence remains very difficult to interpret, and it would be unwise not to be aware of this flaw when making policies.

⁹ Discrimination can also occur where the same price is charged to customers who, perhaps because one is more expensive to serve than the other, should be charged different prices.

¹⁰ D.W. Carlton & J. Perloff, Modern Industrial Organization (New York: HarperCollins, 1990); D.F. Greer, Industrial Organization and Public Policy (New York: MacMillan, 1980).

¹¹ D.F. Greer, Industrial Organization and Public Policy (New York: MacMillan, 1980).

¹² F. G. Tiffany & J. A. Ankrom, “The competitive use of price discrimination by colleges” (1998) 24 Eastern Econ. J. 99.

¹³ R. Wilson, Non-Linear Pricing (New York: Oxford, 1993) at 30-36.

 

¹⁴ D. I. Rosenbaum & M.-H. Ye, “Price Discrimination and Economics Journals” (1997) 29 Applied Econ. 1611. Dana developed a model demonstrating price discrimination in the airline industry through the use of advance-purchase discounts (J.D. Dana, Jr., “Advance- purchase discounts and price discrimination in competitive markets” (1998) 106 J. of Political Econ. 395).

 

¹⁵ This comment was made by McFetridge (D.G. McFetridge, "Predatory and Discriminatory Pricing" in The Law and Economics of Competition Policy, F. Mathewson, M. Trebilcock & M. Walker, eds. (Vancouver: Fraser Institute, 1990) at 74

 

¹⁶ J. Slive & D. Bernhardt, “Pirated for Profit” (1998) 31 Can. J. of Econ. 886.

 

¹⁷ This would occur where consumers have low demand elasticity (W.K. Viscusi, J.M. Vernon & J.E. Harrington, Economics of Regulation and Antitrust (Cambridge: MIT Press, 1995). This definition of price discrimination in a static context is the one in good currency. It presumes that product variety is more or less fixed, that there is no technical change and that there is no entry of new firms. This is hardly realistic. In a world characterized by constant technical change, constant product innovation, and evolving consumer requirements, the assumption that one is faced with “the same product” is hardly realistic. But there are serious consequences when one exits this simplistic world. What might be reasonably regarded as price discrimination in a static context might correspond to an acceptable pricing strategy in a Schumpeterian “creative destruction” world where competition is importantly focussed on gaining market share in the early phase of the product cycle in order to impose a standard (R. Brenner, “Market Power: Innovations and Antitrust” in The Law and Economics of Competition Policy, F. Mathewson, M. Trebilcock and M. Walker, eds. (Vancouver: Fraser Institute, 1990)). We will return to this later.

 

¹⁸ If one views discrimination from a more dynamic perspective, it would be necessary to consider to what extent the surplus transferred to the discriminator would be invested to create future efficiencies in its business. If sufficient competition appeared in the market, the benefit of such efficiencies might ultimately be passed on to consumers. A dominant discriminator is less likely to be able to maintain its dominance in markets characterized by high levels of innovation.

 

¹⁹ J.B. Dunlop, D. McQueen & M. Trebilcock, Competition Policy: A Legal and Economic Analysis (Toronto: Canada Law Book, 1987) at 217.

 

²⁰ Ibid. at 217-8.

 

²¹ Dunlop, McQueen and Trebilcock also suggest that suppliers have good reasons to resist efforts by customers to obtain large non-cost justified discounts. To the extent that discriminatory discounts in favour of a large customer threaten the existence of some of supplier’s other customers and results in increased market power for the large customer, it is not in the supplier’s interest to cave in to such pressure. Granting such discounts may lead to the large customer having a monopsony (ibid.).

 

²² Market power may be evidenced by lower output than would be expected in a competitive market. This has been shown to be the case regardless of the number of sub- markets, the behaviour of marginal cost (increasing, constant or decreasing), and any interdependence in demand between sub-markets (R. Schmalensee, “Output and welfare implications of monopolistic third-degree price discrimination” (1981) 71 American Econ. Rev. 242; H.R. Varian, “Price discrimination and social welfare” (1985) 75 American Econ. Rev. 870; and M. Schwartz, “Third-degree price discrimination and output: generalizing a welfare result” (1990) 80 American Econ. Rev. 1259).

 

²³ P. Milgrom & J. Roberts, “Limit Pricing and Entry under Incomplete Information” (1982) 27 Econometrica 280).

 

²⁴ D.G. McFetridge, "Predatory and Discriminatory Pricing" in The Law and Economics of Competition Policy, F. Mathewson, M. Trebilcock & M. Walker, eds. (Vancouver: Fraser Institute, 1990) at 75-78.

 

²⁵ A buy out at any time would be subject to review under the merger provisions of the Competition Act (ss. 91-103).

 

²⁶ P. Bolton & D.Scharfstein, “A Theory of Predation Based on Agency Problems in Financial Contracting” (1990) 61 American Econ. Rev. 93.

 

²⁷ J. Ordover & G. Saloner “Predation, Monopolization and Antitrust” in Handbook of Industrial Organization, R. Schmalensee and R. Willig, eds. (New York: Esevier Science,1989) at 562.

 

²⁸ P. Milgrom & J. Roberts, “Limit Pricing and Entry under Incomplete Information” (1982) 27 Econometrica 280; J. Roberts, “A Signaling Model of Predatory Pricing” (1986) 28 Oxford Economic Papers 75; G. Saloner, “Predation, Mergers and Incomplete Information” (1987) 18 Rand J. of Econ. 165.

 

²⁹ E. Rasmussen, “Signal Jamming and Limit Pricing: A Unified Approach” Yale Law School Working Paper, 1991.

 

³⁰ P. Milgrom & J. Roberts, “Limit Pricing and Entry under Incomplete Information” (1982) 27 Econometrica 280.

 

³¹ J. R. Lott, Are Predatory Commitments Credible? Who should the courts believe (Chicago, University of Chicago Press, 1999) at 28-59.

 

³² D.G. McFetridge, "Predatory and Discriminatory Pricing" in The Law and Economics of Competition Policy, F. Mathewson, M. Trebilcock & M. Walker, eds. (Vancouver: Fraser Institute, 1990) at 83.

 

³³ P. Areeda & D. Turner, “Predatory Pricing and Related Practices under Section 2 of the Sherman Act” (1975) 88 Harvard L. Rev. 697.

 

³⁴ Areeda and Turner suggest average variable cost as a proxy only so long as the predator has excess capacity. If the predator is producing at capacity, they suggest average total cost is a better proxy because of the need to add new plant to produce more. This distinction was recognized in Director of Investigation and Research v. NutraSweet (1990), 32 C.P.R. (3d) 1 (Comp. Trib.) as discussed in Part II.

 

³⁵ P. Joskow & A. Klevorick, "A Framework for Analysing Predatory Pricing Policy" (1979) 89 Yale L. J. 213. McFetridge is critical of this model as being unworkable in practice (D.G. McFetridge, "Predatory and Discriminatory Pricing" in The Law and Economics of Competition Policy, F. Mathewson, M. Trebilcock & M. Walker, eds. (Vancouver: Fraser Institute, 1990) at 93-4

 

³⁶ D.G. McFetridge, "Predatory and Discriminatory Pricing" in The Law and Economics of Competition Policy, F. Mathewson, M. Trebilcock & M. Walker, eds. (Vancouver: Fraser Institute, 1990) at 83.

 

³⁷ O. Williamson, "Predatory Pricing: A Strategic and Welfare Analysis" (1977) 87 Yale L. J. 284.

 

³⁸ E.g. R. A. Posner, Antitrust Law (Chicago: University of Chicago Press, 1976). Intention has the advantage of allowing action to be taken against people engaged in anti- competitive acts for non-economic reasons, or who do so out of bad judgement. This benefit will be largely mitigated in practice since unsuccessful predation, in general, is good for consumers.

 

³⁹ Miller and Pautler (1985). J. R. Lott, Are Predatory Commitments Credible? Who should the courts believe (Chicago: University of Chicago Press, 1999) at 7; R. A. Posner, Antitrust Law, ibid. at 189-190. L. A. W. Hunter and S. M. Hutton state “... it is impossible to distinguish between predatory and non-predatory competitive intent” in “Is the Price Right? Comments on the Predatory Pricing Enforcement Guidelines and Price Discrimination Enforcement Guidelines of the Bureau of Competition Policy” (1993) 38 McGill L. J. 830 at 864.

 

⁴⁰ M. A. Utton, "Anticompetitive Practices and the Competition Act, 1980" University of Reading, Department of Economics Discussion Papers in Industrial Economics, Series E Vol. III (1990/1) No. 24. A 1998 study of competition in the U.K. petrol market conducted for the Office of Fair Trading found no evidence of predatory activity, though large numbers of independent gas stations had closed. Office of Fair Trading, Competition in the Supply of Petrol in the UK (1998). The OFT attributed the decline in independents to intense competition from supermarkets.

 

⁴¹ As discussed in Part II and Part III, all of these factors are present in the current Canadian regime.

 

⁴² R. Koller, “The Myth of Predatory Pricing” (1971) 4 Antitrust Law and Economics Review 105. See also J. McGee, “Predatory Price Cutting: The Standard Oil (N.J.) Case” (1958) 1 J. of L. and Econ. 137; K. Elzinga, “Predatory Pricing: The Case of the Gunpowder Trust” (1970) 13 J. of L. and Econ. 223; L. Phlips & I. M. Moras, "The AKZO decision: a case of predatory pricing?" (1991) 41 J. of Industrial Econ. 315.

 

⁴³ M.R. Burns, “Predatory Pricing and the Acquisition Cost of Creditors” (1986) J. of Pol. Econ. 266; D Weiman & R. Levin, “Preying for Monopoly: the Case of the Southern Bell Telephone Company 1894-1912" (1994) J. of Pol. Econ. 10

 

⁴⁴ T.Calvani, “Predatory Pricing and below-cost sales statutes in the United States: an analysis (Ottawa: Competition Bureau, 1999) at 2-4.

 

⁴⁵ F. Mathewson & R. Winter, "The Law and Economics of Vertical Restraints" in The Law and Economics of Competition Policy, F. Mathewson, M. Trebilcock & M. Walker, eds. (Vancouver: Fraser Institute, 1990) at 112.

 

⁴⁶ Price maintenance may not protect a competitor where the competitor sells multiple goods only some of which are subject to price maintenance or there are many substitutes available for the price maintained goods in the market.

 

⁴⁷ One may expect that this would be rarely successful where a reseller may find an alternative source of supply. In practice, however, the costs of changing suppliers, and exclusive contracting arrangements may make doing so infeasible. One Commerce Officer interviewed suggested that the majority of price maintenance cases dealt with by the Bureau involved competitor induced price maintenance.

 

⁴⁸ There may also be non-economic arguments in favour or permitting resale price maintenance. The protection of inefficient retailers resulting from price maintenance can be justified on political or distributional grounds. The protection of less efficient retailers which service special interests (e.g. seniors, disabled, lower income, etc.) and the protection of small business may warrant the reduction in competition resulting from price maintenance.

 

⁴⁹ A. W. Dnes, "Resale price maintenance and antitrust policy" (1996) 3 Applied Economics Letters 107 at 107-108. The magnitude of this effect will be a function of the search costs of consumers and the inherent importance of service in connection with a particular product. Where search costs are low and the product is complex, such as computers, the free riding problem is likely to be significant. F. Mathewson & R. Winter, "The Law and Economics of Vertical Restraints" in The Law and Economics of Competition Policy, F. Mathewson, M. Trebilcock & M. Walker, eds. (Vancouver: Fraser Institute, 1990) at 120.

 

⁵⁰ F. Mathewson & R. Winter, ibid. at 121-2.

 

⁵¹ H.P. Marvel & S. McCafferty, “The welfare effects of resale price maintenance” (1985) 28 J. of L. & Econ. 363.

 

⁵² R. Deneckere, H. Marvel & J. Peck, “Demand uncertainty and price maintenance: markdowns as destructive competition” (1997) 87 American Econ. Rev. 619.

 

⁵³ R. M. Ippolito, “Resale Price Maintenance: Empirical Evidence from Litigation” (1991) 34 J. Law and Econ. 263.

 

⁵⁴ H.P. Marvel & S. McCafferty, “The welfare effects of resale price maintenance” (1985) 28 J. of L. & Econ. 363.

 

⁵⁵ R. M. Ippolito, “Resale Price Maintenance: Empirical Evidence from Litigation (1991) 34 J. Law and Econ. 263.

 

⁵⁶ This includes adopting a consultative coordination capability within the production chain, and a cooperation strategy with other stakeholders and governments (see J. de la Mothe & G. Paquet, eds., Challenges Unmet in the New Production of Knowledge (Ottawa: PRIME, 1998).

 

⁵⁷ Typically referred to as “Schumpeterian efficiency” (G. Paquet, “Evolutionary cognitive economics” (1998) 10 Information Econ. and Policy 343).

 

⁵⁸ Corley suggests that competition policy traditionally focused on static market analysis. Where dynamic changes were considered, “traditional analysis primarily focused on non- transitory changes that resulted in a shift in equilibrium rather than the continuous change which characterizes the Information Economy.” R.D. Corley, “ IP and Competition Law: Enforcement Challenges of the Information Economy” Canadian Bar Association, Annual Fall Conference on Competition Law (1999) at 11.

 

⁵⁹ G. Dosi et al., Technical Change and Economic Theory (Great Britain: Pinter, 1988).

 

⁶⁰ See W. O. Sheramata, “New issues in competition policy raised by information technology industries;” J. Farrell, “The effects of antitrust and intellectual property law on compatibility and innovation;” and D. J. Teece, “The meaning of monopoly: antitrust analysis in high-technology industries” in (1998) 43 Antitrust Bulletin (various pages). In the same volume, Rubinfeld suggests how conventional antitrust analysis can be applied to deal with dynamic network industries (D. L. Rubinfeld, “Antitrust enforcement in dynamic network industries” (1998) 43 Antitrust Bulletin).

 

⁶¹ Antitrust Division, Department of Justice, Antitrust Guidelines for the Licensing and Acquisition of Intellectual Property (Washington: U.S. Department of Justice, 1995).

 

⁶² J.M. Nannes, “Antitrust in an era of high-tech innovation” Address by John M. Nannes, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice to the National Institute Representing High Technology Companies (Boston MA., 1998).

 

⁶³ W. J. Baer, “Antitrust enforcement and high technology markets,” Address by W. J. Baer, Director of the Bureau of Competition of the Federal Trade Commission, to American Bar Association (San Francisco, 1998).

 

⁶⁴ H. I. Wetston, “The Treatment of Co-operative R&D Activities under the Competition Act” (Consumer and Corporate Affairs Canada, March 4, 1988); R. Brenner, “Market Power: Innovations and Antitrust” in The Law and Economics of Competition Policy, F. Mathewson, M. Trebilcock & M. Walker, eds. (Vancouver: Fraser Institute, 1990) at 127.

 

⁶⁵ C. S. Goldman & J. D. Bodrug, “Antitrust Law and Innovation - Limits on Joint Research & Development and Inter-Company Communications in Canada” (1995) Canada- United States L.J. 127.

 

⁶⁶ Ottawa: Supply and Services Canada, 1995.

 

⁶⁷ I.e., the supply curve is downward sloping.

 

⁶⁸ J.T. Schwartz, “America’s economic-technological agenda for the1990s” (1992) 121 Daedalus 139; K. Kelly, New Rules for the New Economy: 10 Radical Strategies for a Connected World (New York: Penguin, 1998).

 

⁶⁹ G. B. Richardson, “Competition, innovation and increasing returns” (1996) Danish Research Unit for Industrial Dynamics Working Paper No 96-10; G. B. Richardson, “Economic analysis, public policy and the software industry” (1997) Danish Research Unit for Industrial Dynamics Working Paper No. 97-4.

 

⁷⁰ G. B. Richardson (1996), ibid., G. B. Richardson (1997), ibid.; L. Soete & B. ter Weel, "Schumpeter and the knowledge-based economy: on technology and competition policy" Maastricht Economic Research Institute on Innovation and Technology Research Memoranda 99-04 (1999).

 

⁷¹ G.B. Richardson, ibid. See also See G. Dosi, “The nature of the innovative process” in G. Dosi et al., Technical Change and Economic Theory (Great Britain: Pinter, 1988) at 221.

 

⁷² R.D. Corley, “ IP and Competition Law: Enforcement Challenges of the Information Economy” Canadian Bar Association, Annual Fall Conference on Competition Law (1999) at 21.

 

⁷³ W. Holmes, Antitrust Handbook (New York: Boardman & Co.,1998) at 266-268. Holmes suggests that some argue in favour of the inclusion of non-competition factors such as the effect on employment and other social interests, but concludes that there is no consensus on the requirement to do so.

 

⁷⁴ Each approach has its advocates: Ordover and Saloner, after summarizing the debate conclude "simpler, more explicit tests of anticompetitive behaviour are likely to be preferable , even if, in some circumstances, these tests would produce (systematic over and under inclusion)"(J. A. Ordover & G. Saloner, “Predation, Monopolization and Antitrust” in R. Schmalensee and R. Willig, eds., Handbook of Industrial Organization (New York: Elsevier Science, 1989) at 580); J. Church and R. Ware "Abuse of Dominance under the 1986 Canadian Competition Act" (1998) 13 Rev. of Indust. Org. 85-129 prefer a full rule of reason approach and conclude that the abuse of dominance provision in the Competition Act has been "conducive to implementation of social welfare criterion using a rule of reason approach" (at 86).

 

⁷⁵ Sylvania Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977).

 

⁷⁶ General Motors of Canada v. City National Leasing, (1989) 1 S.C.R. 641.

⁷⁷ Such considerations are briefly referred to in the Bureau’s Merger Enforcement Guidelines, Information Bulletin No. 5 (Consumer and Corporate Affairs Canada, 1991) at 3.2.2.1, 3.3.2.1 and Appendix I(III).

 

⁷⁸ For the full text of all the provisions of the Competition Act referred to see Appendix 2.

 

⁷⁹ Section 489A of the Criminal Code, enacted by S.C. 1935, c. 56, s. 9, and re-enacted by S.C. 1952, c. 39, s. 11. In the next revision of the Criminal Code, the provision became s. 412 (S.C. 1953-4, c. 51) and it was transferred to the Combines Investigation Act as s. 33A by S.C. 1960, c. 45, s. 13).

 

⁸⁰ Report of the Royal Commission on Price Spreads (Ottawa: King's Printer, 1935), Chapter 2.

 

⁸¹ In the United States such an injury was found in United States v. New York Great Atlantic & Pacific Tea Co. Inc. et al., 67 F. Supp. 626 (Ill. Dist. Ct., 1946) aff'd 173 F. 2d 79 (7th Cir., 1949).

 

⁸² Report of the Royal Commission on Price Spreads (Ottawa: King's Printer, 1935) at 270. R. J. Roberts, Roberts on Competition/Antitrust: Canada and the United States, 2d ed. (Toronto: Butterworths, 1992) at 135.

 

⁸³ In 1960, a prohibition on granting allowances for advertising or display purposes that are not offered on proportionate terms to competing purchasers was added to the law because it was believed that the price discrimination provision did not catch such discrimination since it did not take the form of a price concession.

 

⁸⁴ In 1977, s. 50(1)(c), the predatory pricing provision, and s. 50(1)(b), the regional price discrimination provision was amended to apply to "products", which includes both goods and services (S.C. 1977-75-76, c. 76, s. 16). The general price discrimination provision, s. 50(1)(a), was not amended. Note also that the offence may be committed by persons who are party or privy to or assist in any sale, so liability could attach to an agent or broker acting on behalf of a seller. Buyers are not liable, though the Price Discrimination Enforcement Guidelines suggest that a buyer could be held liable for counseling an offence (at 8). Also, if the buyer has market power, other sections may apply. Consignment sales entered into for the purpose of discriminating are prohibited under s. 76 of the Act.

 

⁸⁵ R. v. Hoval (unreported 1958) referred to in R. J. Roberts, Roberts on Competition/Antitrust: Canada and the United States, 2d ed. (Toronto: Butterworths, 1992) at 161.

 

⁸⁶ Restrictive Trade Practices Commission, Report relating to the Distribution and Sale of Mary Maxim Knitting Wool, Patterns and Accessories thereof in Canada, Report of the Director (1966) at 59. The supplier was found to have breached the section because it was negligent in classifying its customers for the purposes of giving volume discounts. Volume requirements were not clearly determined, purchases were not tracked effectively and no period was established for determining whether volume requirements were met.

 

⁸⁷ The 3 convictions are: R. v. Simmons (unreported, Ont. Prov. Ct. (Crim. Div.), October 15, 1984)($15,000 fine on each of two counts and prohibition order); R. v. Neptune Motors, (1986) C.C.L. 7046 (Ont. Dist. Ct.)($50,000 fine); R. v. Jacques Perreault (unreported, Quebec Superior Court, June 16, 1996)(one (1) year prison term). Other cases have proceeded to court but did not result in convictions. A prohibition order was issued in R. v. Station Mont. Tremblant Lodge (unreported, Federal Court Trial Division, April 6, 1989). At least two section 36 cases have dealt with price discrimination allegations: Hurtig Publishers v. W.H. Smith (1989), 99 A.R. 70 (Q.B.); and Acier d'Armature Rô Inc. v. Stelco (1996), 69 C.P.R. (3d) 204 (Que. C.A.).

 

⁸⁸ The provision was described as “generally ineffective” in Proposals for a New Competition Policy for Canada, Second Stage: Combines Investigation Act Amendments (Ottawa, Consumer and Corporate Affairs, 1977) at 63.

 

⁸⁹ Davies, Ward & Beck, Competition Law of Canada (New York: Juris Publishing, looseleaf) at 4-4 - 4-9, L.A.W. Hunter & S.M. Hutton, “Is the Price Right: Comments on the Predatory Pricing Enforcement Guidelines and Price Discrimination Enforcement Guidelines of the Bureau of Competition Policy” (1993) 38 McGill L. J. 830 at 864-5 .

 

⁹⁰ Industry Canada (Ottawa: Queen's Printer, 1992).

 

⁹¹ L.A.W. Hunter& S.M. Hutton, “Is the Price Right: Comments on the Predatory Pricing Enforcement Guidelines and Price Discrimination Enforcement Guidelines of the Bureau of Competition Policy” (1993) 38 McGill L. J. 830 at 865; Davies, Ward & Beck, Competition Law of Canada (New York: Juris Publishing, looseleaf) at 4-6.

 

⁹² Discussion Paper: Competition Act Amendments (Ottawa: Industry Canada, 1995) at 19- 20.

 

⁹³ Report of the Consultative Panel on Amendments to the Competition Act (1996) at 29-30.

 

⁹⁴ Speech to Canadian Institute, Toronto, May 10, 1996 at 19-20.

 

⁹⁵ Price Discrimination Enforcement Guidelines at 3.

 

⁹⁶ A functional discount was upheld in R. v. William E. Coutts, (1968) 1 O.R. 550 (H.C.J.), aff’d (1968) 1 O.R. 549 (C.A.). In that case the purchaser receiving the discount because it test marketed a new style of greeting card for the supplie

 

⁹⁷ R. v. Simmons (unreported, Ont. Prov. Ct. (Crim. Div.), October 15, 1984).

 

⁹⁸ L.A.W. Hunter & S.M. Hutton, “Is the Price Right: Comments on the Predatory Pricing Enforcement Guidelines and Price Discrimination Enforcement Guidelines of the Bureau of Competition Policy” (1993) 38 McGill L. J. 830 at 853; Davies, Ward & Beck, Competition Law of Canada (New York: Juris Publishing, looseleaf) at 4-18 - 4-24.

 

⁹⁹ E.g. ss. 61(2) and 77(4).

 

¹⁰⁰ Sale has been clearly defined in Anglo-Canadian law since Helby v. Matthews (1895-99) All ER Rep. 821; (1895) AC 471 (H.L.). The treatment of affiliates in the Guidelines has been criticized in Davies, Ward & Beck, Competition Law of Canada (New York: Juris Publishing, looseleaf) at 4-27 to 4-30 and L.A.W. Hunter & S.M. Hutton, “Is the Price Right? Comments on the Predatory Pricing Enforcement Guidelines and Price Discrimination Enforcement Guidelines of the Bureau of Competition Policy” (1993) 38 McGill L. J. 830 at 851. By contrast, Roberts suggests that a court may agree with the Bureau’s interpretation (R. J. Roberts, Roberts on Competition/Antitrust: Canada and the United States, 2d ed. (Toronto, Butterworths, 1992) at 156).

 

¹⁰¹ L.A.W. Hunter & S.M. Hutton, ibid. at 856-7 raise this issue as well as the logic of treating franchise units as a economic unit. The interests may diverge, for example, where the franchisor retains the benefit of any discount based on system volume. The authors raise similar concerns with respect to the Guidelines acceptance of international volume price discounts granted to a Canadian subsidiary of a multinational corporation as a consequence of the volume of sales to all corporations affiliated with the multinational.

 

¹⁰² Robinson-Patman Act, 49 Stat. 1526 (1936), s. 3.

 

¹⁰³ Clayton Act, originally enacted as 38 Stat. 730 (1914), now 15 U.S.C. s. 13.

 

¹⁰⁴ Clayton Act, s. 4, 14 U.S.C. s.15.

 

¹⁰⁵ The jurisdiction of the Federal Trade Commission is created by the Federal Trade Commission Act (originally enacted as 38 Stat. 717-721 (1914) s. 5, now15 U.S.C. s. 45) which empowers the Commission to prevent the use of unfair methods of competition in or affecting commerce. In this regard the Federal Trade Commission performs functions analogous to those of both the Competition Bureau and the Competition Tribunal. The Commission may also obtain relief from the courts including preliminary injunctive relief (s. 13(b), 15 U.S.C. s. 53(b)) where there is a “fair and tenable chance of ultimate success on the merits (FTC v. Beatrice Foods Co., 587 F. 2d. 1225 (D.C. Cir., 1979)).

 

¹⁰⁶ Department of Justice, Report on The Robinson-Patman Act (January, 1977); Speech by Donald I. Baker, Assistant Attorney-General responsible for the Antitrust Division of Department of Justice, "Robinson-Patman Revisited” (March 18, 1977).

 

¹⁰⁷ F. Mathewson & R. Winter, "The Law and Economics of Vertical Restraints" in The Law and Economics of Competition Policy, F. Mathewson, M. Trebilcock & M. Walker, eds. (Vancouver: Fraser Institute, 1990) at 115. U. S. courts have noted the inconsistency between the Robinson-Patman Act and prevailing antitrust thinking and held that the Act should be interpreted in a manner which is consistent with such thinking to the extent possible (e.g. Brooke Group v. Brown and Williamson Tobacco Corp., 509 U.S. 209 (1993); but see Chroma Lighting v. GTE Products Corp. 11 F. 2d 653 (9th Cir., 1997)).

 

¹⁰⁸ Discounts which are equally and realistically available to all competitors or that are granted in return for some service are also permitted.

 

¹⁰⁹ R. J. Roberts, Roberts on Competition/Antitrust: Canada and the United States, 2d ed. (Toronto: Butterworths, 1992) at 139, 147, 159.

 

¹¹⁰ U.S. v. U.S. Gypsum Co. 1977 CCH Trade Cas. ¶61238 (3d. Cir., 1977).

 

¹¹¹ Originally enacted as 26 Stat. 209 (1890)s. 2, now 15 U.S.C. s. 2.

 

¹¹² Sherman Act (15 U.S.C. s. 2). B. E. Hawk, United States, Common Market and International Antitrust: A Comparative Guide (New York: Aspen Law and Business, 1996)(Vol. 2) at 862. The Sherman Act may be enforced civilly or criminally by the Antitrust Division of the Department of Justice and the Federal Trade Commission.

 

¹¹³ Treaty of Rome, 298 U.N. T.S. 11 (March 25, 1957).

 

¹¹⁴ The article numbers of the Treaty of Rome were changed by the Amsterdam Treaty, in force May 1, 1999. Article 81 was formerly Article 85 and Article 82 was formerly article 86.

 

¹¹⁵ Under Article 81, the price discrimination would also have to affect trade between member states.

 

¹¹⁶ Article 82 provides as follows:

---

Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States.

Such abuse may, in particular, consist in:

---

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

(b) limiting production, markets or technical development to the prejudice of consumers;

(c) applying dissimilar condition to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

 

¹¹⁷ Tetra Pak II, OJ 1992 L72/1, (1992) 4 CMLR 551.

 

¹¹⁸ Suiker Unie v. Commission, (1975) ECR 163, 2003 (1976) 1 CMLR 295, 472; Hoffman- La Roche, OJ 1976 L223/27, (1976) 2 CMLR D25 §60; BPB Industries/British Gypsum, Case T- 65/89, judgement of 1 April 1993.

 

¹¹⁹ B. E. Hawk, United States, Common Market and International Antitrust: A Comparative Guide (New York: Aspen Law and Business, 1996)(Vol. 2).

 

¹²⁰ Napier Brown/British Sugar, OJ 1988 L284/91.

 

¹²¹ Indeed the provision has been criticized in Canada at least since 1969 when the Economic Council of Canada released its Interim Report on Competition Policy (Ottawa: Queen's Printer, 1969) at 122.

 

¹²² Amendment of the price discrimination provision to permit other cost justified discrimination in the form of functional discounts was recommended in Proposals for a New Competition Policy for Canada, second stage: Combines Investigation Act Amendments March 1977 (Ottawa: Consumer and Corporate Affairs, 1977) at 63.

 

¹²³ In the United States, the cost justification rule has been strongly criticized as costly and, ultimately, unworkable in practice. The American concerns need to be put in context. The cost justification defence is one of only two defences to the strict U.S. law on price discrimination.

 

¹²⁴ Permitting cost justification as a general defence was recommended in L.A. Skeoch & B.C. McDonald, Dynamic Change and Accountability in a Canadian Market Economy (Ottawa: Queen's Printer, 1976).

 

¹²⁵ The Competition Act is not uniform in how it deals with anticompetitive effect. Section 77 contains an effect on competition test. Section 75 requires that a person cannot get adequate supply because of inadequate competition and section 80 requires that delivered pricing be by a dominant supplier or be widespread in a market and that the customer is “denied an advantage that would otherwise be available to him.” Section 76, dealing with the use of consignment arrangements to implement price discrimination, is anomalous since it is in the civil section but contains no competitive effect test.

 

¹²⁶ L.A. Skeoch & B.C. McDonald, Dynamic Change and Accountability in a Canadian Market Economy (Ottawa: Queen's Printer, 1976). The Economic Council of Canada reached the same conclusion in its Interim Report on Competition Policy (Ottawa: Queen's Printer, 1969).

 

¹²⁷ B. E. Hawk, United States, Common Market and International Antitrust: A Comparative Guide (New York: Aspen Law and Business, 1996)(Vol. 2).

 

¹²⁸ Ibid. at 866. Hawk suggests that the E.U. is getting less tolerant of price discrimination, while the U.S. is becoming more tolerant (at 872).

 

¹²⁹ Corley suggests that price discrimination “may be required for the development of socially valuable new products and services to be economically feasible” (R. D. Corley, “IP and Competition Law: Enforcement Challenges of the Information Economy” presented to Canadian Bar Association, Annual Competition Law Conference (1999) at 12)

 

¹³⁰ The Guidelines do say that where price discrimination is engaged in by a dominant firm for the purpose of impeding or preventing the entry of a competitor or potential competitor, or to coerce discriminatory discounts from suppliers with the effect that competition is or is likely to be substantially lessened, the Commissioner will review the practice under s. 79 (Appendix 1).

 

¹³¹ There is an oblique reference to the use of “other provisions of the Competition Act” to deal with such a situation in 2.2 of the Price Discrimination Enforcement Guidelines.

 

¹³² (1980), 28 O.R. (3d) 164; aff'd (1981), 125 D.L.R. (3d) 607 (C.A.).

 

¹³³ R. v. Perreault (unreported, Que. Superior Court, June 16, 1996).

 

¹³⁴ R. v. Producers’ Dairy (1966), 50 C.P.R. (2d) 265. In Boehringer v. Bristol Meyers Squibb, (1998) O.J. No. 4007 (Q.L.)(Ont. C.A.), the court determined that matching a competitor's price, even if below cost, cannot be predatory, following Hoffman-La Roche. The court also refused to grant an injunction prohibiting the alleged predator from selling below cost on the additional ground that prices were inherently volatile and plaintiff would have been free to sell below cost.

 

¹³⁵ (1980), 28 O.R. (2d) 164, aff’d (1981), 125 D.L.R. (3d) 607 (C.A.).

 

¹³⁶ This is consistent with the statement in Hoffman-La Roche that “(i)f an article is sold for more than cost it can never be held to be unreasonable” ((1980), 28 O.R. (2d) 164, at 200 (H.C.J.), aff'd (1981), 125 D.L.R. (3d) 607 (C.A.)). There have been several private cases in which an allegation of predatory pricing have been raised: 947101 Ontario Limited Ltd. v. Barrhaven Town Centre Inc. et al. (1995), 121 D.L.R. (4th) 748 (Ont. Ct. Gen. Div.); Mansoor Electronics Ltd. v. BCE Mobile Communications Inc. et al. (1995), 64 C.P.R. (3d) 165 (F.C.T.D.); and Boehringer v. Bristol Meyers Squibb, (1998) O.J. No. 4007 (Q.L.)(Ont. C.A.).

 

¹³⁷ The defensive character of low prices set by alleged predators resulted in acquittals in several cases where price was above average variable cost: R. v. Consumers Glass (1981), 33 O.R. (2d) 228 (H.C.); R. v. Producers’ Dairy (1966), 50 C.P.R. (2d) 265 (Ont. C.A.); R. v. Ray (unreported, Police Court, South Burnaby, B.C., Dec. 11, 1957); R. v. Howard (unreported, Police Court, South Burnaby, B.C., March 19, 1958) and R. v. Fairmont Plating (Alta.) Ltd. and Fairmont Industries Ltd. (unreported, Alta. S.C., January 17, 1977), cited in Davies, Ward & Beck, Competition Law of Canada (New York: Juris Publishing, looseleaf) at 4-82.

 

¹³⁸ R. v. Hoffman-La Roche (1980), 28 O.R. (2d) 164, at 201 (H.C.J.), aff'd (1981), 125 D.L.R. (3d) 607 (C.A.).

 

¹³⁹ (1995), 121 D.L.R. (4th) 748 (Ont. Gen. Div.) at 760-761.