May 8, 2014
Earlier today, the C.D. Howe Institute issued the second of two reports on the Canada/U.S. “price gap” issue: Cross-Border Price Regulation: Anti-Competition Policy? For my comments on the first report, issued two days ago see: here.
In this second report, by the C.D. Howe’s Competition Policy Council, the think tank adopts the same critical (and in my view correct) view of the federal government’s proposal to introduce legislation (presumed to be a Competition Act amendment) to address the Canada/U.S. retail price gap issue.
In no uncertain terms, the report concludes that the federal government’s proposal is “profoundly wrong-headed in approach and should not proceed”. Several key conclusions of the report include that, in the Council’s view, any such legislation introduced would be impractical to implement, unenforceable, chill competition and be costly for both government and business.
While both C.D. Howe reports are very good indeed, I think it’s fair to say you don’t need to be a competition law expert, economist or policy maker to come to the same conclusion.
While competition laws can and do serve important purposes to regulate certain aspects of the market, and certain specific and relatively isolated market distortions, they are not (at least insofar as our current Competition Act is concerned) meant or equipped to address more systemic or widespread market concerns. And, as has been pointed out by a number of observers now and is correct, the Competition Bureau is not a market regulator nor is the Competition Act intended to regulate markets.
It seems to me that any legislative solution would have to be based on one of two main assumptions: first, that enforcement would be widespread enough to correct the gap issue in dozens if not hundreds or thousands of potentially problematic markets (seems highly unlikely); or second, that enforcement would “deter” similar “unjustified” price discrimination in other Canadian sectors (which has not, for example, largely proved to be the case for some existing Competition Act offences – cartels for example). In sum, a “legislative fix” would seem to be a narrow and cumbersome solution to a more systemic and widespread issue.
As was also pointed out by the C.D. Howe Institute’s Benjamin Dachis yesterday in a quite good interview with CTV (see: Report puts price gap burden on Harper government), the federal government’s proposal also appears to be part of a, misplaced in my view, trend to endeavor to micro-manage markets or certain industries.
In my view, and is also raised in this new report, the federal government should be focusing on creating the conditions for greater competition rather than seeking to determine how much competition is “competitive” (e.g., the four wireless carrier debate) or micro-managing particular sectors.
In this respect I think the C.D. Howe hit the nail on the head with several obvious solutions that would seem to be far more likely to alleviate cross-border Canada/U.S. price differences than a Competition Act amendment (and presumably more Competition Bureau enforcement and maybe an occasional prolonged Competition Tribunal proceeding):
“More productive potential moves to promote competitive markets, specifically aimed at improving consumer choice and prices, are clear. The federal government could lower or eliminate import tariffs, liberalize the producer cartels that are maintained through agricultural supply management and dairy quotas in particular, lower other regulatory barriers to internal and external trade in goods and services, and facilitate cross-border price arbitrage, by increasing duty-free limits for returning Canadian travelers.”
In sum, focus on reducing trade barriers and opening up protected domestic markets (not passing yet more legislation and thinking that occasional market reviews or enforcement will cure the problem).
For a copy of the C.D. Howe’s new report see: Cross-Border Price Regulation: Anti-Competition Policy?
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