Excessive and unfair prices in Canadian abuse of dominance

Canada recently introduced a new ‘excessive and unfair selling prices’ provision under its abuse of dominance framework. While this development seems to move abuse of dominance closer to the European Union competition law model, this provision is unusual because it likely requires excessive and unfair pricing to have either a negative effect on competitors or adverse effects on competition. This hybrid model of exploitative abuse largely overlaps with existing provisions in the Competition Act, which already address practices like margin squeeze, suggesting it may have limited applicability. At the same time, this hybrid model raises relevant theoretical questions about how to remedy scenarios where excessive prices are used as substitutes for explicit exclusionary practices and whether the new provision may apply to such cases. Over the past few years, Canadian competition policy has undergone some of the most significant reforms in its history.1 Between 2022 and 2024, the combination of three large reform packages2 has introduced significant changes to the Competition Act, including the criminalization of wage-fixing, the abolition of the efficiency defence for mergers and the introduction of a new controversial structural presumption, a wide expansion in private rights of action, new market studies power, and an increase in administrative monetary penalties available in abuse of dominance cases,3 from a maximum of $10 million to 3 per cent of the firm’s annual worldwide gross revenue.4 The goal of this paper is to analyse one specific reform: the introduction of a new ‘excessive and unfair selling prices’ provision as a new form of abuse of dominance.5 From a comparative and theoretical perspective, this reform is noteworthy for two reasons. First, before 2023, Canada aligned with the position followed under US antitrust law and did not condemn monopoly prices.6 Hence, the reform appears to move abuse of dominance in the direction of EU competition law.7 Second, this reform introduces an unusual posture to excessive pricing that, intentionally or unintentionally, does ‘not’ actually appear to address exploitative exercises of market power per se. This latter result stems from the fact that excessive and unfair pricing has been added under Section 78 of the Competition Act, which sets out a non-exhaustive list of abusive practices ‘and’ a general legal definition of abuse as ‘any act intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, or to have an adverse effect on competition’.8 Given that abusive practices must satisfy this definition, the most plausible interpretation is that excessive and unfair prices will constitute an abuse ‘only’ when they have an exclusionary, predatory, or disciplinary effect on competitors or harm competition. 9 This mixture of exploitative and exclusionary elements raises a conceptual puzzle: what forms of excessive prices have the potential to harm competition or competitors? This paper analyses this question and discusses the potential enforcement implications posed by this new hybrid model of exploitative abuse. It explains why, if interpreted consistently with the existing definition of abuse, the provision is likely to have limited applicability as it covers practices that are for the most part ‘already’ regulated by the Competition Act, such as predatory pricing and margin squeeze. At the same time, it shows that the reform may, perhaps inadvertently, have relevance in a narrow set of cases not adequately remedied by abuse of dominance where high prices are a source of exclusionary effects. The Canadian government’s effort to address rising prices, especially in the grocery sector, culminated in a significant, last-minute change to Bill C-56.10 During a House of Commons committee review, just one month before the Bill’s enactment, a provision on excessive and unfair pricing was added as a proposed amendment to Section 78.11 Rushed through the parliamentary process, this sudden inclusion aimed at securing majority support for the legislation was introduced with limited opportunity for debate and consultation with stakeholders—a surprising result given that excessive pricing was not included in the Competition Bureau’s detailed list of recommendations to the government highlighting key reform priorities.12 Perhaps due to limited opportunities for meaningful examination, the new excessive and unfair pricing provision has adopted an unusual model of exploitative abuse. This section offers an overview of this model. As a background, Sections 78 and 79 of the Act are the main provisions covering abuse of a dominant position in Canada. Section 79 of the Competition Act lays out the general legal framework based on a finding of dominance, anticompetitive acts, and substantial lessening or prevention of competition.13 Section 78 provides a legal definition of anticompetitive act and offers a nonexhaustive list of examples of abusive practices. The recent reform introduced by Bill C-56 has expanded this list to include ‘directly or indirectly imposing excessive and unfair selling prices’.14 While this new provision makes it clear that high prices by dominant firms can now be condemned under the Act, its addition under Section 78 also means that such a practice must conform with the legal definition of anticompetitive act included in the same section,15 which requires negative effects on competitors or adverse effects on competition. As discussed below, this requirement significantly limits the scope of applicability of the new provision. Prior to 2022, Section 78 contained a nonexhaustive list of abusive practices but did not include a precise legal definition of abuse. The definition of anticompetitive act was instead found in the Federal Court of Appeal’s decision Commissioner of Competition v Canada Pipe Co.16 The case centred on allegations that Canada Pipe had engaged in exclusive dealing through its Stocking Distributor Program, which provided substantial rebates to distributors who exclusively stocked Canada Pipe branded cast iron products. In its decision, the Federal Court Appeal held that an anticompetitive act must have a predatory, exclusionary or disciplinary negative effect on a ‘competitor’.17 This questionable terminological choice, arguably not motivated by a normative conception of abuse aimed at protecting competitors, later became a major source of controversy in the subsequent landmark decision Toronto Real Estate Board v Canada (Commissioner of Competition).18 This dispute involved the competitive effects of data policies imposed by the Toronto Real Estate Board (‘TREB’), one of the largest real estate boards in Canada, on its member brokers. The TREB operated a multiple listing service database for properties in the Greater Toronto Area, which included real estate information such as historical sales data and list prices. While the TREB allowed its members to use and share the data through various means, its policy prevented members offering virtual services from displaying certain data through their websites, a service known as virtual office websites. The Commissioner of Competition contended that these restrictions harmed competition by limiting the ability of innovative brokers to provide virtual services beyond the traditional in-person channels. One of the central questions in this case was whether the contested practice could satisfy the definition of abuse under Canada Pipe. Since TREB did not technically compete with its members and was not an active competitor in the affected relevant market, the Competition Tribunal initially concluded that the practice could not have a negative effect on a competitor.19 On appeal, the Federal Court of Appeal revisited its own, earlier definition from Canada Pipe and addressed this unsatisfactory result by expanding the definition of ‘competitor’ to include anyone who ‘competes in the relevant market, or who is a potential entrant into that market’.20 This broader interpretation allowed the Court to apply the abuse of dominance framework to TREB’s practices. At the same time, it effectively sidestepped a much-needed reconsideration of whether abuse of dominance should be defined by harm to competition or harm to competitors. In response to the remaining ambiguities in abuse-related jurisprudence, Bill C-19 eventually addressed this gap in 2022 by expanding the definition of anticompetitive acts to include conduct with predatory, exclusionary, or disciplinary effects on competitors ‘or an adverse impact on competition’. This definition is now codified in Section 78(1) of the Competition Act. Together, the codification of this new definition of abuse under Section 78 and the later addition of 78(1)(k) lead to a surprising legal result: for excessive and unfair prices to trigger Sections 78 and 79, they must have a predatory, exclusionary, or disciplinary negative effect on a competitor or have an adverse effect on competition. If this is the correct interpretation, the provision creates a hybrid model mixing elements of exclusion and exploitative exercise of market power. This interpretation, however, is puzzling for a number of reasons. For one thing, it is unclear how excessive pricing could negatively impact a competitor. In general, competitors benefit from supracompetitive prices by a rival because the result is a diversion of sales from that firm toward lower-priced alternatives. For another, it is also difficult to see how excessive prices could harm competition. Monopoly pricing usually incentivises competitive forces by serving as a signal of profitability for new entrants. As the US Supreme Court noted in Trinko: ‘The opportunity to charge monopoly prices—at least for a short period—is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth’.21 Therefore, a key question raised by this reform is what practices, if any, will fall under the new exploitative abuse provision. Theoretically, as noted by Bodrug, one potential category that may satisfy Section 78(1)(k) is predatory pricing.22 In predation cases, a dominant firm charges a price below cost in one period in order to then recoup the losses by charging monopoly prices after the successful foreclosure of rivals. In theory, this dynamic is consistent with the new provision’s legal requirements: the postpredation monopoly price is clearly related to a ‘predatory’ act that harms both competitors and competition. Notably, however, predatory pricing is ‘already’ covered under the Competition Act. One specific type of predatory pricing is addressed in Section 78(a)(i), which describes ‘selling articles at a price lower than the acquisition cost for the purpose of disciplining or eliminating a competitor’ as one form of abuse.23 For this reason, the new pricing provision does not seem to add anything new to the regulation of predation. Another potential practice that may satisfy the new provision is margin squeeze by a vertically integrated firm.24 Traditionally, these cases involve a dominant firm in an upstream market that supplies an important input to firms operating in a downstream market where the dominant firm also competes. Margin squeeze can occur when the dominant firm charges a high price for the input to squeeze downstream competitors’ margin and reduces their ability to compete. This practice clearly falls under 78(1)(k) because the ‘exclusionary’ nature of margin squeeze directly derives from an excessive price—the latter is effectively equivalent to a constructive refusal to supply. As with predation, however, the new provision does not cover an existing gap in the Act. Section 78(1)(a), for example, already identifies as an abuse ‘squeezing, by a vertically integrated supplier, of the margin available to an unintegrated customer who competes with the supplier, for the purpose of impeding or preventing the customer’s entry into, or expansion in, a market’. 25 Considering the above discussion and the significant overlap between the new prohibition and the existing legal framework, the reform seems to add little to the current competition law toolkit and, as a result, it is likely to have very limited impact going forward. This outcome is somewhat surprising, given that it appears largely inconsistent with the policy concern that motivated the reform. Clearly, the provision was intended to introduce a new measure against rising prices, but this objective is ultimately not well reflected in the actual substance of the novel 78(1)(k) provision. Despite this outcome, the introduction of a hybrid model of exploitative abuse raises theoretical questions about whether excessive pricing could have (or be related to) exclusionary effects beyond recognized cases like margin squeeze and predation and how broadly the new provision might apply to deal with such cases. The final section of this paper identifies one unexplored economic scenario that highlights the potential relevance of this hybrid model: cases where high prices sustain anticompetitive effects by functioning as substitutes for explicit exclusionary practices. The overall merit of a hybrid model of exploitative abuse can be assessed from several perspectives. One is the general desirability of regulating exploitative exercises of market power through competition law. From a theoretical perspective, the academic literature on this question is extensive.26 On the one hand, charging monopoly price reduces short-term consumer and total surplus. On the other hand, critics of exploitative abuses raise several arguments against the regulation of excessive prices. One argument is that monopoly prices are generally not durable and are eventually eroded by market forces, as new entrants are attracted by the prospect of supracompetitive profits; another argument is that the prospect of monopoly profits incentivizes investments and can therefore lead to positive long-term welfare effects; and a third argument is that price regulation is not an administrable remedy for a competition authority.27 While some commentators argue that, despite these concerns, such provisions can be valuable for addressing extreme cases of markets with high entry barriers,28 these policy rationales have made antitrust agencies generally reluctant to pursue exploitative abuses, even when covered by antitrust legislation.29 Viewed through the lens of these larger debates on the pros and cons of using antitrust to regulate monopoly pricing, the hybrid model adopted by the reform may be welcomed by those who are generally opposed to the adoption of exploitative abuse provisions. As discussed, a possibly unintended consequence of the reform is that it contributes little to the pre-existing antitrust framework. Conversely, the requirement that high prices must be exclusionary may disappoint advocates of antitrust intervention against purely exploitative exercises of market power. Another relevant question concerns the compatibility of the reform’s hybrid model with different normative conceptions of antitrust policy.30 Conceptually, since charging monopoly prices simpliciter does not harm competition, whereas exclusionary pricing creates competitive distortions, this model may align with the notion that competition law should focus solely on practices that distort the competitive process.31 It must be noted, however, that this interpretation has little basis in economic theory. Indeed, the paradoxical implication of such interpretation is that it is good policy to condemn exclusionary practices that harm consumers indirectly, but it is bad policy to condemn practices that harm consumers directly.32 From an economic perspective, in contrast, the arguments against prohibiting exploitative exercises of market power are fundamentally related to enforcement costs and the challenges of price regulation. In practice, one motivation to condone high prices is that it can be too difficult for a competition authority to trade off, on a case-by-case basis, the short-term effects on consumer welfare against the long-term impact on investment incentives that price regulation may have, let alone the additional administration and monitoring required on an ongoing basis.33 A policy focused on exclusion, instead, may provide a clearer remedy and involve less obvious substantive concerns about disincentives to innovation and investments. From this error-cost perspective, the only compelling argument in support of a hybrid model is that it may potentially pose lower remedial challenges than pure cases of monopoly prices as the remedy can focus on the exclusionary elements of the practice as opposed to excessive prices alone. In this regard, one open and possibly unexplored question is whether a hybrid model may be used to tackle the ongoing effects of past exclusionary conduct, in cases where the practice has either escaped the radar of enforcement or has not been properly addressed due to ineffective remedies.34 As I explore in other work,35 one pertinent problem involves cases of exclusive dealing where high prices become substitutes for explicit exclusivity by serving as a focal point of coordination for the continuation of an exclusionary practice. This exact dynamic was at play in the well-known decision Canada (Director of Investigation and Research) v D&B Companies of Canada Ltd. (‘Nielsen’).36 In this case, a leading provider of market-tracking services (Nielsen) was accused of engaging in exclusionary practices that prevented competitors from entering the scanner data-tracking services market. One of Nielsen’s services involved analysing scanner data collected from retail stores at checkout counters to help manufacturers track product performance, market share, and consumer demand trends. When a new competitor, Information Resources Inc., attempted to enter the Canadian market, Nielsen responded by signing exclusive contracts with data major Canadian grocery and retail from selling their scanner data to Nielsen’s competitors. In Nielsen exclusivity with downstream large consumer manufacturers who Nielsen’s market-tracking The Canadian Competition Tribunal held that Nielsen’s practices had the effect of lessening competition. Indeed, the upstream exclusive contracts a significant entry by preventing new from an input data to effectively Nielsen a monopoly on market-tracking data in Canada. effects by downstream contracts with On these the Competition Tribunal Nielsen to using exclusivity provisions in its In the of the decision, however, the remedy imposed on Nielsen was largely in One is that the order Nielsen from exclusivity provisions in the contracts with the it did ‘not’ Nielsen from data high prices for the scanner As a result, the remedy did not the economic incentives that to anticompetitive First, competition for data and the high prices for exclusivity that Nielsen effectively its monopoly with upstream data for example, a than increase in the price for scanner data the introduction of exclusive Second, data eventually that it was in their to offering data exclusively at supracompetitive prices to Nielsen even after the exclusivity provisions by the Competition As by and grocery of data has recognized that if it to the by selling the data to as well as then the downstream monopoly be by a of substitutes in which costs to The monopoly as have discussed, these largely upstream to the as of the The economic at play in this case are related to the problem of excessive prices with exclusionary effects discussed in this In exclusion was explicit which a focal point for coordination between Nielsen and data the the of Nielsen’s monopoly profits to data for the for explicit the supracompetitive price for the which was to the of Nielsen’s monopoly to act as an entry and continuation of exclusionary conduct through This outcome is noteworthy in that the problem did not result from a substantive gap in the Act. Indeed, the practice of exclusive dealing is covered under both Sections and 79 of the Act, and a of harm was in this case by the Competition the was that on explicit exclusive dealing to a remedy that focused on the exclusivity in the contracts but did not address the of excessive prices from the of monopoly as an equivalent source of Considering the the exact legal interpretation of the new abuse and from the case it is difficult to whether Section 78(1)(k) could applicability in a One for is that the excessive price in Nielsen was by the data and not by Nielsen Given that the new provision to than prices, its relevance on whether it could be to the of the even if Section 78(1)(k) to cases, concerns about the of likely potentially limiting its the above that excessive prices can as entry used by dominant firms to in that beyond This that, at least a hybrid model of exploitative abuse could be an additional to address a narrow set of cases where the exclusionary effects of excessive pricing are not effectively remedied by other competition law provisions. The new excessive and unfair pricing provision in Canadian competition policy raises several relevant questions from a comparative antitrust One noteworthy development is that the at least abuse of a dominant position in Canada closer to EU competition law and from the position adopted in US antitrust law. Another important is that the new provision likely excessive and unfair prices only when they have an exclusionary, predatory, or disciplinary effect on a competitor or have an adverse effect on competition. This creates an unusual hybrid provision on excessive pricing, limited appears inconsistent with the policy concern for rising prices that motivated the reform. As this has this model raises potentially unexplored theoretical and questions for antitrust enforcement against exploitative exercises of market power with exclusionary effects.

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