Daniel Schwanen – Reform of the Competition Act

October 8, 2021

Many commentators bemoan the market power of large companies operating in the Canadian marketplace. They have focused in particular – though far from exclusively – on big US-based Internet companies. In Europe, these entities will now be regulated by a special ex-ante – prospective – regime that applies only to them. And meanwhile, there are US calls that these firms be broken up.

However, there are no reasons to think that adopting similarly sweeping approaches would actually result in a more competitive Canadian marketplace, relative to modernizing the application of our current competition rules, and better resourcing those who have to apply them.

The market power of firms at the top has indeed increased across many industries and nations, according to the IMF. It points the finger at a series of mergers and acquisitions, particularly in technology-intensive sectors that can reap benefits from data- or R&D-based economies of scale and of scope, as drivers of increasing market concentration.

Policymakers are rightly worried that this trend can suppress business dynamism, which could translate into lower innovation and higher prices.

But it is not evident a priori that such negative impacts obtain in any given market in which a large company, or a few large companies, may operate. First, size may be a function of network economies – of the efficiency with which data-driven firms are able to provide tailored services to their customers, the so-called “mass customization” effect. This is not bad for customers – or for suppliers seeking to offer their goods and services on electronic marketplaces or social media platforms. In general, in a time of rapid technological change, innovation is  compatible with competition between a few large innovators at the technological frontier.