Competition in Canada is hindered by governments, not corporations

OTTAWA, ON (April 6, 2023): In recent years, the rise and dominance of a few large technology companies have raised concerns about whether competition in Canada is being throttled. The federal government is conducting consultations on whether its competition policy needs to be updated. The pertinent question is: would enacting stricter competition policy be necessary or helpful?

In a new MLI paper, Competition policy in Canada: Time for an overhaul, Senior Fellow Philip Cross closely examines the federal government’s approach to reforming competition law, arguing that there is little point in changing Canada’s Competition Act without broader changes in government policies and attitudes to business.

“The greater hindrance to competition in Canada is the behaviour of governments, not of firms,” writes Cross. “Governments do the most to tilt the playing field in favour of entrenched incumbent firms with their wide range of regulations and restrictions on trade and foreign ownership that impede competition.”

Some economists blame lagging innovation in OECD countries like Canada on a lack of competition due to the concentration of market share among a small number of firms. However, Cross points to flaws in this analysis: most of the evidence cited is for the US, which remains the most innovative and productive economy in the OECD, and statistical evidence on rising concentration is not conclusive.

The key variable is not rising concentration but whether it can be demonstrated that it is harming consumers. The dominance of Facebook, Google, and Microsoft reflects the power of network effects, where the more people use the product the better the product becomes, which in turn makes it more attractive to other customers. In such winner-takes-all networks, competition policy would have a negligible impact.

Cross concludes that Canada’s weak economic performance is rooted in its poor record in business investment and lack of business dynamism: it has seen its entrepreneurial spirit lag and its commitment to growth, led by the business sector rather than government, wane. Governments all too often foster an anti-business attitude in Canada.

Simply put, Canada cannot afford any more government initiatives that undermine the performance of its business sector. In this environment, tightening the enforcement of competition laws would be seen by the business community as an attack. Instead, governments could foster more competition by opening large segments of Canada’s economy currently insulated from competitive forces and improving regulations. More broadly, governments need to take the lead in encouraging increased innovation and fostering a more entrepreneurial culture in Canada.

“There is little point in changing Canada’s Competition Act without broader changes in government policies and attitudes to business,” writes Cross. “If competition regulations can force a change in business structures because they harm consumers, then they should also be empowered to correct government actions that clearly favour producers at the cost of consumers.”