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Submission to the OECD's Competition Committee on the role of competition policy in promoting economic recovery

October 30, 2020

On this page:

  1. Guide to competition assessment
  2. Strategic advice for policy-makers

Introduction

Policies that support competition can accelerate Canada's post-pandemic economic recovery by stimulating entry by new businesses, productivity and innovation:Footnote 1 that was the message from the Competition Bureau Canada to Canadian policy officials and regulatory bodies (collectively, the policy-makers).

The Bureau, as an independent organization responsible for enforcing Canada's Competition ActFootnote 2 (the Act), ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace. Led by the Commissioner of Competition, the Bureau carries out the legislative mandateFootnote 3 to promote and advocate for the benefits of competition in Canada.

For the Bureau, the experience of past crises has shown that economic crises provide some businesses with the opportunity to enhance their market power. Instead of adapting, some businesses with market power are incentivized to reduce production, increase prices or erect barriers to entry, which could prolong an economic slowdown and, ultimately, jeopardize the productivity and competitiveness of the economy.Footnote 4

In addition, the experience of past crises has shown that economic crises can also spur the adoption of protectionist measures. Governments may be required to intervene not only to suspend or relax the enforcement of competition law, but also to support struggling businesses or economic sectors.Footnote 5

During the COVID‑19 health crisis, the first challenge faced by the Bureau emerged when the pandemic's impact on the normal functioning of the economy began to make itself felt. The Bureau, like many of its international counterparts,Footnote 6 published its guidelines on collaboration between competitors in the context of COVID‑19: these guidelines propose a flexible, yet principles-based approach to collaborations that are necessary to ensure the provision of essential goods and services.

These precedent-setting guidelines were a significant step back from the Bureau's traditional prescriptions on the enforcement of the Act with respect to collaboration between competitors. However, the Bureau deemed these guidelines necessary given the circumstances surrounding the market.

More broadly speaking, in the context of the economic slowdown and recovery that have followed in the wake of the COVID‑19 health crisis, the Bureau considers its role to be two-fold.

First, it is responsible for protecting consumers, businesses and government spending from anticompetitive practices through the enforcement of the Act. The Bureau continued to crack down on anticompetitive activities, such as fraudulent commercial practices, price fixing, and bid-rigging in public procurement, specifically by issuing warning letters to a variety of business.Footnote 7

These law enforcement activities are intended above all to maintain consumer confidence during the pandemic and beyond, in order to contain the effects of the crisis on demand, and to set the groundwork for a strong recovery.

Second, the Bureau has adapted its competition promotion activities in order to assist public decision-makers in taking competition into account during and after the pandemic. Adhering to the principle that government policies that support competitive markets can help speed up economic recovery, the Bureau has continued to promote the positive outcomes of pro-competitive policies to policy-makers.Footnote 8

This brief presents some of the competition promotion initiatives undertaken by the Bureau to assist policy-makers during the economic slowdown and in preparation for the recovery of the Canadian economy.

The first initiative consists of the step-by-step guide designed by the Bureau for Canadian policy-makers to help them with competition assessment. The guide was addressed to more than 150 federal, provincial and municipal policy-makers. The second initiative consists of targeted advice from the Commissioner or the Bureau to policy-makers on issues likely to influence the recovery of the Canadian economy.

I. Guide to competition assessment

On August 20, 2020, the Bureau published a technical guidance document for policy-makers.Footnote 9 The guide addresses concerns relating to the fact that, on the one hand, in making decisions, policy-makers must put various policy goals into perspective—and among these goals, competition is not necessarily considered to be the most important.Footnote 10 On the other hand, in the absence of appropriate tools, policy-makers with the best of intentions could be limited in their capacity to assess the impact of their competition decisions and to be proactive in reducing such an impact.

Therefore, in its role as competition expert, the Bureau has committed to assisting policy-makers by providing them with a practical tool that identifies harm to competition and helps them take positive steps to mitigate the harm.

The guide was designed on the basis of the Bureau's experience and the international best practices shared by the Organisation for Economic Co-operation and Development (OECD) and the International Competition Network (ICN).Footnote 11 It is a functional document that assists decision-makers in assessing competition by addressing the following questions:

Why competition is important

The Bureau reiterates that competition is essential to Canada's economic health insofar as it:

  1. Lowers prices, creates more choice for consumers and increases quality levels
    In a competitive market, all businesses seek to maintain a value proposition that is at least as attractive as that of their competitors; failure to do so would result in lost sales, a weakened position in the market and eventually, exit from the market. For consumers this means better products at more affordable prices.Footnote 12
  2. Empowers consumers
    Competitive markets give consumers the power to choose the products and services that best meet their needs, at a price that they are prepared to pay. Competition results in a wider variety of choices and an easier comparison between products and services, which allows consumers to make informed decisions and to hold businesses accountable.Footnote 13
  3. Stimulates productivity, economic growth and innovation
    The competitive process generates continuous improvement by ensuring that businesses that can produce the most output with the fewest inputs will prosper, and by freeing up those that are not as well adapted for other productive uses in the economy. This brings about greater economic productivity, which increases the wealth and economic well-being of Canadians.Footnote 14 Businesses also innovate more when faced with greater competitive pressure.Footnote 15

How to perform a competition assessment

The Bureau states that competition assessments require policy-makers to consider the effect that policies may have on the competitive process in a given industry. As with other governmental assessments, such as gender-based analysis and environmental impact assessments, these assessments help policy-makers to identify and avoid unintended consequences of the policies.Footnote 16

A competition assessment includes five steps:

Step 1: Identify the policy

In this step, the why and how of the policy-maker's preferred approach are identified. This involves specifying the underlying goals and determining the instrument(s) that a policy-maker will use to achieve those goals.Footnote 17

Step 2: Assess whether the policy impacts competition

In the second step, a policy-maker should enumerate any restrictions that the policy will place on business conduct and analyze how its policy approach will affect competition.Footnote 18 To help a policy-maker in this exercise, the Bureau sets out the four central indicators of a competitive marketplace.Footnote 19

Step 3: Identify alternatives to address policy goals, if necessary

If Step 2 reveals that the proposed policy affects any of the indicators of a competitive marketplace, then a policy-maker should ask whether other policy approaches would be less intrusive to competition and market forces, and assess whether those alternative approaches will also achieve their policy goals. If so, then those alternative approaches should be preferred. With a view to using these other methods, a policy-maker should focus on the features of the policies identified in Step 2 as having the potential to restrict competition and assess whether those restrictions are:

  1. necessary,
  2. narrowly defined, and
  3. proportionate.Footnote 20

Step 4: Implement the best alternative

Once a policy-maker is satisfied that it has identified a policy that achieves the policy goal in the most competition-friendly manner, based on the best available evidence, then it is ready to move that policy through the normal course of implementation.Footnote 21

Step 5: Conduct an ex-post assessment

It is important that policies keep up with the rapid pace of economic development and technological change; otherwise, there is a risk that time-worn policies can negatively affect new ways of doing business. Policy-makers can limit this risk by committing to review existing policies on a regular basis.Footnote 22

With this tool, the Bureau intends to support a culture of competition by providing policy-makers with a practical tool to help them design rules that promote competition. Therefore, the publication of the guide was followed by an invitation, sent to over 4,000 federal regulatory organizations, to test out the tool.

II. Strategic advice for policy-makers

In a more targeted manner, the Bureau provided strategic advice to policy-makers on issues likely to promote a timely recovery of the Canadian economy.

Advice regarding the renewal of Canada's monetary policy

On October 1, 2020, as part of the Bank of Canada Consultation with respect to renewing Canada's monetary policy framework, the Commissioner presented a brief in which he developed his position, that "to be at its best, Canada needs more competition," around three central ideas.

  1. Competition lowers inflationary pressures
    On the basis of studies in the field,Footnote 23 the Commissioner reiterates the deflationary effects of the competitive process on the economy.

    Competition unlocks economic value by motivating entrepreneurs to re-imagine all aspects of a business: developing products that better address the desires of consumers, more efficiently producing and distributing goods, and retailing those products in innovative and valuable ways. Through the competitive process, consumers receive lower quality-adjusted prices that are both measureable and impactful, having a deflationary effect on the economy.
  2. Competition drives productivity
    The Commissioner also highlights the relevance of the international studies that link higher levels of competition with greater innovation and productivity.Footnote 24

    The competitive process drives continuous improvement. Businesses that can produce the most output with the fewest inputs will thrive, while those with poorer results must take on other productive uses in the economy. This effect ensures higher economic productivity, which increases the wealth and economic well-being of Canadians.
  3. A competition culture will reinvigorate the Canadian economy
    Lastly, the Commissioner reiterates that the digital economy is disrupting and reshaping markets, and that authorities across the globe must face a new set of challenges. For Canadian consumers and businesses to thrive in a digital economy, policy-makers need to seize opportunities to encourage competition and innovation in areas that matter to Canadians.

Advice concerning the importance of small- and medium-sized enterprises

On August 28, 2020, the Deputy Commissioner, Competition Promotion Branch (Deputy Commissioner), sent a letter to the Standing Committee on Finance and Economic Affairs of the Legislative Assembly of Ontario regarding measures taken by the Government of Ontario to identify and minimize barriers to the entry and expansion of small- and medium-sized enterprises (SMEs). In the context of economic recovery, the Deputy Commissioner applauded such an initiative.

Indeed, considering the role of SMEs in the Canadian economy and the impact of the health crisis on their activities,Footnote 25 the Deputy Commissioner highlights the importance of removing barriers to entry or expansion that could prevent SMEs from competing.

On the one hand, he encourages the adoption of pro-competition policies that support the participation of SMEs in the marketplace and promote dynamism and competitiveness in the Canadian economy.

On the other, he states that, following an economic turndown, markets in which businesses can easily enter and expand are likely to recover the fastest. Obstacles that make it more difficult for businesses to enter or expand in a market diminish competitive intensity and slow growth.

Advice given to the Standing Committee on Industry, Science and Technology (INDU)

On May 25, 2020, the Bureau presented a brief to the Standing Committee on Industry, Science and Technology (INDU) of Canada's House of Commons as part of their review of the Canadian response to the COVID‑19 pandemic.

In the brief, which was one of the Bureau's first interventions relative to the economic recovery, the Bureau shared its perspective on the role of competitive markets in Canada's economic recovery, in terms of both law enforcement and promotion of competition.

With respect to promotion of competition, the Bureau clearly espoused the idea that governments can contribute to the swift recovery of the Canadian economy by reinforcing a strong culture of competition, where businesses are driven to grow and innovate, and the Canadian economy can fully embrace its competitive advantage.

Conclusion

Given the advantages of competition at all times, and especially during an economic recovery, the Bureau has emphasized its message on the importance of building a culture of competition in CanadaFootnote 26 through the enforcement of the Act and the promotion of pro-competitive policies to Canadian policy-makers, particularly in key industries in Canada's economy.

In this vein, the Bureau recently launched a public consultation as part of a market study of Canada's health care sector; the consultation will allow for timely, evidence-based recommendations concerning the advantages of pro-competitive policies in the sector.

The COVID‑19 pandemic has truly highlighted the importance of digital solutions in responding to the health-care needs of Canadians.Footnote 27 It is essential that the measures taken to provide Canadians with digital health care solutions during the pandemic promote the development and deployment of digital solutions beyond the health crisis.

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