OPINION: Proposed Revision of the Efficiency Defence for Mergers in Canada’s Competition Act

May 9, 2022

The Competition Bureau’s 67-page submission to Senator Howard Wetston’s Competition Act consultation process used about 20 pages to focus on merger provisions including the efficiency defence.

This attention is well deserved. The Act’s merger provisions are the most significant area under consideration for potential amendment. Mergers can lead to structural changes to the competitive dynamics of a market. CEOs and board members generally spend more time discussing mergers than they do other possible issues encompassed by the Competition Act.

In its submission, the Bureau recommends the efficiencies exception in s.96 of the Act should be eliminated:

The Act may permit anti-competitive mergers when the private benefits of merging outweigh the broader economic harm of the merger. The efficiencies exception should be eliminated, and instead efficiencies should be considered as a factor when considering the effects of mergers.

We disagree.

The efficiency defence (its history is here) allows an anti-competitive merger when the gains in efficiency exceed and offset the anti-competitive effects that may arise from the merger.

As we outlined in our own submission to the Wetston consultation, eliminating the efficiency defence would give rise to a significant change in the application of the Competition Act and to a considerable extent negate the potential benefits of a properly applied efficiency defence.

Reducing it to a “factor” to be considered rather than a defence would turn efficiency into a discretionary variable rather than the paramount goal of the merger provisions of the Act as the Competition Tribunal and the Federal Court of Appeal found in the Tervita propane case.

The Supreme Court decision in that 2015 case has called into question how the efficiency defence should be applied.

The efficiencies from the merger in Tervita were negligible while the merger itself would likely lead to price increases of 10 percent. Given that the Commissioner of Competition did not quantify the anticompetitive effects, even a conceptual efficiency gain of $1.00 would have been sufficient to satisfy the test. In Tervita, the Supreme Court allowed the merger to proceed as the Commissioner of Competition had failed to introduce any quantifiable anti-competitive effects into evidence, and as a consequence, the Supreme Court held that such effects had a value of zero. As such, the merging parties’ very modest efficiency gains were larger than the anti-competitive effects and, therefore, the efficiency defence was allowed and the merger permitted to proceed.