BTL Glasbeek leaderboard

Ding, dong the efficiencies defence is dead

But did Trudeau kill it in time to restore competition and lower prices?

Canadian PoliticsMedia Canadian Business

Most of Canada’s major industries, such as banking, oil and gas, media and retail, have long ago become dominated by oligopolies of a few dominant firms which exert inordinate market power, to the detriment of ordinary Canadians. Photo by Arild/Flickr.

Just like a quick-thinking Dorothy in The Wizard of Oz, a desperate Prime Minister Justin Trudeau threw a bucket of cold water on the Competition Act’s controversial “efficiencies” defence last week in an attempt to help bring down the soaring cost of groceries. “I’m melting,” exclaimed a dissolving Section 96 as Munchkins across the land rejoiced that they would soon enjoy lower prices for cheese. The statutory defence to monopoly, unique in the world, was included in the Competition Act when it was introduced in 1986 with high hopes that it would help propel Canada as a major player on the world stage. Instead it turned the country into a virtual Monopolyland of ever-larger and more dominant businesses as Canadians paid higher and higher prices for goods and services. It remains to be seen whether its elimination will be enough to restore competition and bring prices down.

The defence “allows anti-competitive mergers to survive challenges if corporate efficiencies offset the harm to competition,” noted the announcement from Trudeau’s office, “even when Canadian consumers would pay higher prices and have fewer choices.” The move was just one of several measures announced with the obvious aim of buoying a government that is sinking rapidly in the polls, which included calling on grocery store chains to stabilize prices and empowering the Competition Bureau to stop Big Grocery from quashing smaller competitors. The measures also included steps to help alleviate the housing crisis, including by removing the GST on construction of new apartment buildings.

The Competition Bureau has been hindered in its enforcement efforts for decades by the efficiencies defence, but its effect has been most noticeable since being confirmed by the Supreme Court of Canada in a 2015 case involving a hazardous waste removal merger in Northern British Columbia. Section 96 of the Act provides a defence that requires the Competition Bureau to allow a merger it deems anti-competitive if the merging parties could prove it would bring private savings that exceeded any public detriment. Other countries, such as the US, EU, UK and Australia also allow efficiencies to be considered in deciding whether to allow a merger, but not as a statutory, trump-card defence. Those countries also require that efficiency gains benefit not just the economy as a whole, but consumers specifically in the form of product innovation or lower prices.

The pursuit of economic efficiency was considered paramount in the mid-1980s, when Canada’s relatively small domestic market prevented more than a few firms from operating at a size big enough to allow efficient production. Since then, globalization and Canada’s many free trade agreements have opened up our economy to the world and reduced the need to prioritize size and efficiency over competition and consumer welfare. The efficiencies defence lay dormant in the Act for almost 30 years, however, until it was first tested before the Supreme Court of Canada in the case of Tervita Industries, which had acquired its only regional competitor. The Competition Bureau rejected the merger and its ruling was upheld by both a Competition Tribunal and the Federal Court of Appeal. An appeal to the Supreme Court of Canada, however, resulted in the merger being allowed. The court pointed to some small efficiencies proved by the company, which amounted to half of one junior staff position, and noted that the Competition Bureau had not even attempted to put a number on detriment to the public.

The timing was unfortunate for Canada’s news media, as Postmedia Network, the country’s largest newspaper chain, had recently taken over Sun Media, the second-largest chain. The Competition Bureau approved the Sun Media purchase in light of the Tervita ruling, as Postmedia had pointed to the efficiencies it expected to gain from layoffs. The company, which is 98 percent owned by US hedge funds, has been making efficiencies ever since in order to keep sending tens of millions of dollars a year south in the form of payment on its massive debt, which is mostly held by its hedge fund owners.

The head of the Competition Bureau has been described as “all but begging” for changes to the Competition Act and as being “out for legal blood to make it happen.” “Our laws should not act as a barrier to stopping anti-competitive mergers,” Matthew Boswell pointed out in a speech last year. “Current provisions enable high levels of economic concentration—even monopolies—in the Canadian economy.” Minister of Innovation, Science and Industry François-Philippe Champagne announced a “comprehensive” review of the Competition Act soon after Boswell’s speech. The Competition Bureau vainly challenged the Rogers takeover of Shaw last year, which resulted in the country’s two largest cable companies merging. Given the hopeless nature of its challenge, the Competition Bureau was humiliatingly ordered last month to pay Rogers $13 million toward its legal costs.

The Competition Bureau itself has also called for the efficiencies defence to be scrapped. “A wide swath of Canadian consumers and businesses are harmed in every case where the efficiencies exception applies,” it argued last year in a submission to a review by Senator Howard Wetston, himself a former commissioner of competition. “The private benefits to merging parties granted by the efficiencies exception are financed by the real costs incurred by Canadians.”

The Competition Bureau has recently won some small victories in countering the efficiencies defence, however, ironically including a merger challenge that also involved Tervita, which was in turn taken over by a larger competitor. A Competition Tribunal ruling found that the efficiencies defence is not a “silver bullet” defence in all cases and also required companies relying on it to disclose the location of their shareholders to prevent any savings from going to foreign owners. “The Tribunal’s finding reinforces that the efficiencies defence is not a ‘get out of jail free’ card, but rather a significant hurdle for merging parties to clear,” noted one legal analysis. “It is far from automatic that an otherwise anti-competitive merger can be saved.”

Removing efficiency gains entirely in assessing mergers may be ill-advised given that this is how merging firms often assess such transactions, but scaling back its outsized role in Canadian competition law cannot help but improve enforcement. The question becomes whether this amounts to closing the barn door well after the cows have wandered off. Most of Canada’s major industries, such as banking, oil and gas, media and retail, have long ago become dominated by oligopolies of a few dominant firms which exert inordinate market power, to the detriment of ordinary Canadians.

Marc Edge is a journalism researcher and author who lives in Ladysmith, BC. His books and articles can be found online at


URP leaderboard Apr 2024

Browse the Archive