PRB 02-22E

BILL C-249:  

Prepared by:
Daniel J. Shaw
Economics Division
15 November 2002




   A.  Mergers, the Competitive Process and the Competition Act
   B.  Merger Enforcement Guidelines and Efficiencies
   C.  The Competition Act and its Merger Provisions
   D.  Sections 91-95:  The “SLC” Test
   E.  Section 96:  The Treatment of Efficiencies



APPENDIX I:  “Competition Tribunal’s Redetermination Decision in Superior Propane:
Continued Lessons on the Value of the Total Surplus Standard”

APPENDIX II:  “Efficiencies Standards:  Take Your Pick”



Section 96 of the Competition Act sets Canada’s competition legislation apart from those of other countries.  This section states that:  “The Tribunal shall not make an order under section 92 if it finds that the merger … is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition …”; the order to which the Act refers is one that would dissolve or restructure a completed or proposed merger.  This test, which would have the Competition Tribunal balance the social benefits and costs of the merger, has been interpreted by some as being consistent with what is known as the “total surplus standard.”  There are, of course, other interpretations on which standard should be used (i.e., the “consumer surplus standard,” the “U.S. price standard,” the “balancing weights standard”) and, therefore, on what factors should be included in the review, as Parliament was not explicit on this issue when it passed the Act in 1986.

Although Canada’s legislative defence of a merger because its resultant efficiencies outweigh the adverse effects of less competition is unique among the industrialized countries of the world, its 16-year history has not been very hospitable to merger proponents.  The Commissioner of Competition has not even once found the efficiency gains to a merger proposal sufficient to offset any lessening of substantial competition also found.  In this 16-year period, the Tribunal had only once decided on efficiency gains (Superior Propane) and twice commented on them (Imperial Oil and Hillsdown).(1)  The elucidations, however, have been confusing, to say the least.  Just when the Tribunal had come to agree with the Competition Bureau’s Merger Enforcement Guidelines (MEGs) on the treatment of efficiencies according to the “total surplus standard” in Superior Propane, the Bureau abandoned its guidelines.  To make matters less clear, the Federal Court weighed in and overturned the Tribunal’s decision in favour of expanding the strictly quantitative analysis of the “total surplus standard” (which is designed to evaluate only the overall economic impact of the merger) to include redistributional effects of the merger.  At the same time, the Federal Court advocated neither the “consumer surplus standard” nor the “U.S. price standard” approach.

This court direction opened the door for the Commissioner, as well as the lone dissenting Trial judge sitting on Superior Propane, to advocate the “consumer surplus standard” in the Tribunal’s re-decision.  However, sensing that such a restrictive standard would render section 96 virtually ineffective, the majority opinion of the Tribunal panel chose to supplement the “total surplus standard” with a calculation of what is described as the “adverse social effects” of the merger; that is, the wealth redistributed from “poor” consumers to the shareholders of the merging entity.  The Commissioner has since appealed this decision.

These series of events led many eminent competition law commentators to suggest that the efficiencies of a merger do not seem to count for much in Canada.  The House of Commons Standing Committee on Industry, Science and Technology, which had been engaged in a thorough review of Canada’s competition regime while Superior Propane was being decided, came to the conclusion that more study of the issue was warranted and thus recommended:

That the Government of Canada immediately establish an independent task force of experts to study the role that efficiencies should play in all civilly reviewable sections the Competition Act, and that the report of the task force be submitted to a parliamentary committee for further study within six months of the tabling of this report.

The Government of Canada, in its reply to the Committee, declined to follow this recommendation, citing ongoing litigation of the issue and the intent to commission a study of the treatment of efficiencies internationally that would be submitted for parliamentary review.

This document provides background information on the Competition Act as it pertains to mergers, most importantly its treatment of efficiencies.  It also describes and clarifies the single substantive clause of Bill C-249, An Act to Amend the Competition Act, and provides a commentary on the overall impact of the bill in terms of its treatment of efficiencies under merger review.  Finally, this document includes two appendices that:  go into considerable detail on the issues raised in Superior Propane; offer a more complete context on the current state of affairs with respect to efficiencies and mergers; and provide some in-depth analysis of alternative welfare standards, including that proposed by Bill C-249, for dealing with efficiencies in the context of merger review.


   A.  Mergers, the Competitive Process and the Competition Act

The interplay between the process of competition and competition policy and law is an interesting one.  Competition is a means to an end, not an end in itself.  We have competition so that the business sector can deliver the best combination of products at the best prices to consumers.  The best deal a consumer can receive usually comes from a free and open market, one with as few barriers as possible to entry by new competitors and as few exit barriers, including government-imposed barriers such as product, investment or trade regulations.(2)  However, even in the absence of government-imposed barriers, unfettered competition alone may not be enough.  A complementary competition law is usually required in circumstances where, owing to technological barriers, competition will not automatically and immediately flourish.

The Competition Act can be said to have three general targets:  conspiracies to raise prices; mergers and acquisitions that would monopolize markets; and a dominant firm’s abusive business practices and predator policies that would injure, rein in or drive out its smaller rivals.  In terms of mergers, very few of them would be classified as anticompetitive.  In fact, they are often sought to achieve efficiencies in production or to foster innovation.  For this reason, the vast majority of mergers pose no threat, or raise no issue, under the Competition Act.  Expert analysis reports that about 1.6% of all publicly reported mergers (7.5% of those examined) between 1986 and 1994 raised an issue under the Act.(3)  Indeed, the number of issues raised in merger cases further declined in the latter half of the 1990s.  When one subtracts mergers in which monitoring was the chosen enforcement response by the Commissioner – because they were never later challenged or brought back under investigation – the number of mergers that raised an issue under the Act since its inception in 1986 has averaged only 2% of examinations undertaken by the Bureau.

   B.  Merger Enforcement Guidelines and Efficiencies

The Bureau’s MEGs recognize and identify two broad classes of efficiency gains: production efficiencies and dynamic efficiencies.  Production efficiencies arise from real savings in resources that permit a firm to produce more output and/or better-quality output from the same amount of input.  These efficiencies can be measured and supported by engineering, accounting or other data, and they include:

1.  Product-level, plant-level and multi-plant-level operating and fixed-cost efficiencies;(4)

2.  Savings associated with integrating new activities within the firm; and

3. Savings attributable to the transfer of superior production techniques and know-how from one of the      merging parties to the other.

Dynamic efficiencies include gains achieved through the early introduction of new products and services, the development and adoption of better and more efficient productive processes, and the improvement of product and service quality and diversity.  However, given the difficulty in ascertaining these efficiencies (since they are speculative about the future), they are accorded a small weight and will generally be treated qualitatively.

   C.  The Competition Act and its Merger Provisions

The Competition Act provides for the civil review of mergers (sections 91 through 97) by the Tribunal.  On application by the Commissioner, the Tribunal may issue a prohibition or divestiture order with respect to a merger that is deemed to “prevent or lessen competition substantially”; the Tribunal may also vary or deny such a requested order.

In general, a merger will be found “likely to prevent or lessen competition substantially” when the parties to the merger would more likely be in a position to exercise a materially greater degree of market power in a substantial part of a market for two years or more.  Market power can be exercised unilaterally or interdependently with other competitors, and determining whether it exists and can be exercised is done according to a well-established review process.  This process will be explained in two parts:  (1) the entire merger analysis before the consideration of efficiencies (sections 91-95), which, for convenience, can be called the substantial lessening of competition or “SLC” test; and (2) the consideration of efficiencies (section 96).  This approach to the explanation is justified on the grounds that, before an analysis of efficiencies related to the merger even commences, the merger must have failed the tests related to “is likely to prevent or lessen competition substantially” in a market determined under section 93.  If the merger does not fail the Section 93 tests, the efficiencies defence is not required (as in Hillsdown).

Section 97 does not deal with merger analysis per se, but does impose a limit on the application for a section-92 order to a period of three years from the time when the merger was substantially completed.

   D.  Sections 91-95:  The “SLC” Test

Section 91 of the Competition Act sets forth the definition of a “merger,” which is deemed to occur when direct or indirect control over, or significant interest in, the whole or a part of a business of another person is acquired or established.  The principal issue in this section is the interpretation of the words “significant interest,” which is considered to occur when a person acquires or establishes the ability to materially influence the economic behaviour of the business of a second person (e.g., block Director resolutions or make executive decisions relating to pricing, purchasing, distribution, marketing or investment).  In general, a direct or indirect holding of less than a 10% voting interest in another entity will not be considered a significant interest.  However, a significant interest may be acquired or established pursuant to shareholder agreements, management contracts and other contractual arrangements involving incorporated or non-incorporated entities.

Section 92 authorizes the Tribunal, upon application by the Commissioner and upon determining that a completed or proposed merger “is likely to prevent or lessen competition substantially” in a market as provided under sections 93 through 96, to dissolve the completed merger, dispose of assets or shares of the completed merger, or prohibit the consummation of the proposed merger in whole or in part.  Section 92 also prohibits the Tribunal from determining that a merger “is likely to prevent or lessen competition substantially” in a market solely on the basis of evidence of concentration or market share.

Section 93 lists a number of factors to be considered when determining whether a completed or proposed merger “is likely to prevent or lessen competition substantially” in a market.  These factors include:  (a) the extent of foreign competition; (b) the likelihood that the business, in whole or in part, of one of the parties to the merger is going to fail; (c) the availability of acceptable substitutes; (d) any barriers to entry, whether due to absolute cost advantages, sunk costs, tariff or non-tariff barriers to international trade, interprovincial trade barriers, or regulatory control over entry; (e) the extent to which effective competition remains, including the time it would take a potential competitor to become an effective competitor; (f) the removal of a vigorous and effective competitor; (g) the nature and extent of change and innovation in the relevant market; and (h) other relevant criteria that would be affected by the completed or proposed merger.

An initial screen usually precedes the section-93 analysis:  the Commissioner will calculate and analyze market share and concentration thresholds to be able to distinguish markets that are unlikely to be prone to anticompetitive conduct.  The markets that do not surpass the requisite thresholds will be screened out of the review.  The threshold for unilateral exercise of market power is 35% of the post-merger pro-forma market share of the merging parties (sales volume or production capacity).  The threshold for interdependent exercise of market power incorporates a 65% market share held by the four largest firms in a post-merger market and a 10% market share held by either of the merging parties.

Sections 94 and 95 provide exceptions to an order under section 92.  Section 94 deals with a completed or proposed merger under the Bank Act, the Trust and Loans Companies Act or the Insurance Act.  Section 95 deals with a joint venture, other than as formed by a corporation, to undertake a specific project or research and development.

   E.  Section 96:  The Treatment of Efficiencies

Section 96 of the Competition Act sets Canada’s competition legislation apart from those of other countries.  This section states that:  “The Tribunal shall not make an order under section 92 if it finds that the merger … is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition that … is likely to result from the merger …”; the order to which the Act refers is one that would dissolve or restructure a completed or proposed merger.  Some, including the Bureau’s MEGs, have interpreted this test, which weighs the two opposing economic factors, as the “total surplus standard.”

The Act also defines that “the gains in efficiency” to be considered are those that “would not likely be attained if an order were made in respect of the merger”; that is, these efficiencies must be merger-specific.  This implies that if the efficiencies could be realized in a manner that generates less anticompetitive harm than that created by the merger, the efficiencies would not be ascribed to the merger.  For example, efficiencies that could occur through internal growth or unilateral rationalization would not be attributed to the merger.  Alternatively, there may exist other cooperative means of achieving the efficiencies, such as joint ventures or a restructured merger, which would create smaller anticompetitive effects.  Finally, the efficiencies must be real and not just pecuniary; that is, the merger must bring about real savings in resources, and not simply savings that stem from greater bargaining or purchasing power that is essentially redistributive among members of society.

In effect, section 96 provides an exemption to section 92; that is, it introduces the notion of a trade-off between the social losses attributed to the prevention or lessening of competition and the social benefits related to the cost savings resulting from a merger.  When the latter exceed the former, society benefits and thus the merger would be allowed.  The consideration of efficiencies becomes relevant to the review only once a substantial lessening of competition has been established; otherwise, a merger that passes the section-93 tests need not consider them at all.  Finally, the onus of proof is placed on the merging parties to establish that the merger creates efficiencies.


Bill C-249 would amend the Competition Act to clarify the Competition Tribunal’s powers to make or not an order in the case of a merger when gains in efficiency are expected or when the merger would create or strengthen a dominant market position.  The bill contains one clause that would amend section 96 of the Act by adding two subsections following subsection (3).  They are:

(4) For the purpose of subsection (1), gains in efficiency cannot offset the effects of a lessening or prevention of competition unless the majority of the benefits derived or to be derived from such gains in efficiency are being or are likely to be passed on to customers within a reasonable time in the form of lower prices.

(5) This section does not apply where, after the transaction has been completed, the merger or proposed merger, will result or is likely to result in the creation or strengthening of a dominant market position.

The bill proposes two additional conditions on the balancing requirement established in subsection 96(1).  If those conditions are added to the Act, the efficiencies resulting from the merger would, at face value, be less significant.  Moreover, some of the eligible efficiencies under the current framework may be made ineligible under Bill C-249 amendments.  Without qualification, the introduction of these additional burdens would make the section-96 test more difficult and would, therefore, reduce the prospects of a merger passing the review despite the fact that the evidentiary burden appears to be imposed mostly on the Commissioner in both cases.

The first of the two subsections proposed by the bill would require that the merging entity pass on at least 50% of its efficiency gains that are attributable to the merger to consumers before these efficiencies are determined to “offset the prevention or lessening of competition substantially.”  Indeed, the eligibility of a claim of efficiency under subsection (1) would be conditional on more than 50% of it being passed on to consumers.  This subsection further requires that the transfer of the efficiency gains from the merging entity to consumers must be in the form of lower prices and by no other means (e.g., rebates, coupons, better products and services at the same prices).

Presumably, Bill C-249 envisions the benchmark prices of its test to be those of the post-merger entity that are expected to prevail in the absence of the efficiencies being passed on to consumers, rather than existing prices; more clarification here would be helpful.  In Superior Propane, the post-merger prices were said to be based, in part, on the realization of efficiencies that would reduce variable unit costs and the degree to which they would be passed on to consumers (through a consideration of the elasticity of demand).  Presumably, the Tribunal had the ability (through the pleadings of the contesting parties) to determine the post-merger prices in the absence of any efficiencies being passed on to consumers as well.  This determination will be critical if the proposed test under Bill C-249 is to be technically feasible.  In the alternative, if the Tribunal is not able to determine the post-merger prices in the absence of any efficiencies being passed on to consumers as a benchmark price, then it is unclear whether the proposed test of Bill C-249 is at all practical.

In Superior Propane, the Tribunal accepted a 10-year period for the realization of efficiencies attributable to the merger; presumably, a 10-year period satisfies the “within a reasonable time” requirement even though the higher prices expected because of the exercise of increased market power begin almost immediately upon final completion of the merger.

The second of the two subsections contained in Bill C-249 vitiates section 96 altogether (including the Bill’s proposed new subsection (4)) in cases where the merger is likely to result in the creation or strengthening of a dominant market position.  The bill does not define “dominant market position,” therefore it de facto defers this definition to judicial interpretation.


Bill C-249, like the Commissioner and the Federal Court, advocates that the “total surplus standard,” as set out in the Bureau’s MEGs and in the Tribunal’s original ruling in Superior Propane, does not provide a sufficient test for a merger that is deemed to “prevent or lessen competition substantially” to be in the “public interest.”  It also appears that the bill implies a similar judgment of the Tribunal’s Superior Propane re-decision, which tacked on a social redistribution test – limited to those considered “poor” final consumers of a “necessity” – to the “total surplus standard.”  Yet many expert commentators argue the opposite.  They claim that, properly applied, the “total surplus standard” is a sufficient test under merger review in which to determine the “public interest” (see Appendix I).  Furthermore, had the Bureau not erred in the calculation of the “deadweight loss” (see Appendix I) attributable to the merger of Superior Propane Inc. with ICG Propane Inc., it is likely that the Tribunal would have ordered the merger’s dissolution.  These commentators further argue that the Commissioner’s latest favourite, the “consumer surplus standard,” represents overkill, as was implied by the Tribunal in both of its Superior Propane decisions (see Appendices I and II).


Efficiencies:  A Hot Issue

Treatment of efficiencies in the merger context, and by extension in competition policy generally, has been a subject of great attention.  Canada’s 1986 merger law dates from the high water mark of “Chicago” economics, and thus it takes a strong position about efficiencies.  A merger that reduces competition may proceed if that loss is offset by gains in efficiency.  The Bureau’s 1991 merger guidelines followed the Chicago tradition and interpreted this balancing in terms of the lenient “total surplus” standard.  If the gains in productive efficiency, making resources available for other purposes, exceed the “deadweight loss” from the reduction in output due to market power, then the merger would be permitted.

The facts of the 1998 Superior Propane transaction challenged that position starkly.  The merger, to near-monopoly, would produce dead-weight loss and other inefficiencies totalling about CAD 6 million, but it would save the combined firms about CAD 30 million.  And the market power would lead to an increase in consumer prices for bottled petroleum gas, which is sold mostly to lower-income rural users and small businesses, of about CAD 40 million, or nearly 10%.  The Bureau challenged the merger and in doing so did not follow its own guidelines.  The Tribunal looked only at the dead-weight losses and upheld the acquisition because those losses were outweighed by the cost savings.  The Federal Court of Appeal disagreed, finding that the Tribunal had improperly limited the balancing of effects and efficiencies.  The court instructed the Tribunal to consider whether other anti-competitive effects, such as wealth transfers from consumers to producers or impacts on smaller businesses, should be compared to the claimed efficiency benefits.  Noting that the original competition law had been justified as a measure to protect consumers, the judges were not convinced that it should permit a transaction that significantly increased consumer prices.  They were dubious about the “consumer protection” credentials of a decision rule that would find it good to increase prices most to those consumers who were least able to avoid the increase by switching to other products.

The Tribunal has reopened the matter, after the merging parties’ application to appeal to the Supreme Court was rejected.  The general principle has changed prospectively, in any event.  The Commissioner announced in May 2001 that his approach to the statutory balance of efficiencies would consider factors other than the net of losses in total surplus and gains in productive efficiency.

Source:  OECD, OECD Reviews Regulatory Reform:  Canada Maintaining Leadership Through Innovation, 2002, Box 9, p. 79.


The contrast between the “total surplus standard” and all other relevant social welfare standards, including the “consumer surplus standard” and that which is embodied in Bill C-249, begins with their philosophical underpinnings.  The “total surplus standard” weighs only the social benefits (i.e., the efficiency gains) against the social costs (i.e., the deadweight loss) of the merger.  Although those who use this welfare standard acknowledge that increased prices due to the ability to exercise market power redistribute wealth from consumers to shareholders of the merging entity, they treat this transfer as neutral and, therefore, it does not enter the social calculus.  Accordingly, this analysis de facto treats “a dollar in the hands of the shareholders of the merged entity as equal to the dollar in the hands of the consumer” even though those who use this standard rarely believe this statement to be true.  Those who advocate the “total surplus standard” recognize that the standard is simply a means for determining and enhancing economic efficiency; on its own, this welfare standard does nothing for social equity.  However, they nevertheless justify this standard’s use over others on social grounds because they contend that the Competition Act is a very blunt instrument of social redistribution and the government has other and more effective means, such as progressive taxation, special status through tax exemptions, subsidies, social welfare, etc., for addressing social inequities.

On the other hand, Bill C-249’s proposed subsection (4) to section 96, like the “consumer surplus standard,” adopts the notion that “a dollar in the hands of the consumer is worth more than a dollar in the hands of the shareholders of the merged entity.”  This position can be inferred from the fact that the bill does not accept section 96 in its current form, which requires that the social benefits exceed the social costs of the merger only as per the “total surplus standard.”  The bill would, however, accept section 96 as currently interpreted provided that more than 50% of the efficiency gains derived from the merger are put in the hands of consumers in the form of lower prices.  In effect, this additional condition does not change the aggregate social cost-benefit data one iota, but instead prescribes a social distribution of the efficiencies to be deemed eligible for inclusion in the social cost-benefit determination.  Consequently, in determining what is in the “public interest” it is necessary to calculate not only whether the merger will create wealth, but also how much and in whose hands this wealth is held.  This begs the question:  why 50% plus and not 40%, 60%, etc.?

In terms of efficiency and equity, when one compares the pre- and post-Superior Propane interpretations of the Act with that of the “consumer surplus standard” and that which Bill C-249 would add, several interesting observations emerge.  Barring error in its application, the “total surplus standard” incorporated in the merger review process (sections 91 to 97) would permit all mergers that are determined to be likely to enhance economic efficiency and social welfare, even if they prevent or lessen competition substantially.  Those that would not enhance social welfare would be rejected.  This welfare standard does not address (except by coincidence) any equity issues that might arise and, therefore, would be situated relatively close to the “efficiency polar” on a hypothetical efficiency-equity continuum.

The modified “total surplus standard,” as rendered in the Superior Propane re-decision, would permit all mergers that are determined to be likely to prevent or lessen competition substantially but that would enhance economic efficiency and social welfare, after considering and incorporating the adverse social effects on those consumers deemed “poor” (those in the bottom quintile of income earned) and products deemed a “necessity.”  Given that these adverse social effects can be determined, this modified standard would be situated somewhere in the middle of a hypothetical efficiency-equity continuum.

The adoption of the “consumer surplus standard,” as advocated by the Commissioner, or the conditions established in Bill C-249, would permit very few mergers that are deemed likely to prevent or lessen competition substantially even though they would enhance economic efficiency and social welfare (see Appendix II).  The equity considerations of these welfare standards are substantial, and these standards would be situated relatively close to the “equity polar” on a hypothetical efficiency-equity continuum.

Parliamentarians must resolve for themselves two related issues if they are to critically judge Bill C-249.  First, they must determine whether a better solution can be obtained by having the government’s antitrust instrument, the Competition Act, specializing in matters of efficiency and disregarding some but not all matters of equity, while employing other policy instruments, such as progressive taxation, special status through tax exemptions, subsidies, social welfare, etc., for dealing with the more pressing social equity issues.  Or would a better solution come from crafting a new antitrust instrument that would incorporate more explicitly both efficiency and equity considerations in order to provide a social balance through the Competition Act itself, while continuing to employ the above-mentioned social equity instruments, possibly in a more redundant fashion?  Second, and closely related to the first issue, could and should the bluntness of the Competition Act be reduced in favour of a public policy instrument that works on both efficiency and equity matters with scalpel-like precision?

Beyond philosophical matters, subsection (4) would introduce a number of practical obstacles to the review of mergers that are deemed “likely to prevent or lessen competition substantially.”  Subsection (4) would restrict eligible efficiency gains under section 96 to those that are likely to be passed on to consumers in the form of lower prices within a reasonable time.  If this means that prices must be lower than the expected post-merger prices in the absence of efficiency gains, then this condition will severely restrict the application of section 96.  If it means that existing prices must fall post-merger in relation to the amount of these efficiency gains, then this condition will, in all probability, vitiate section 96 altogether.

Subsection (4) also appears to restrict efficiency gains that are eligible for purposes of section 96 to those that affect variable (marginal) unit costs.  As the Tribunal has not provided sufficient judicial interpretation on what types of costs are variable and what are not in the few predatory pricing cases held to date, subsection (4) would be highly problematic.  The uncertainty permeating the predatory pricing provision (paragraphs 50(1)(b) and 50(1)(c)) would soon be imported into merger review and could potentially bog down merger enforcement in the more controversial and borderline cases.  Furthermore, a merger that realizes efficiency gains through savings in fixed costs would not be able to use the efficiencies defence under section 96.  These savings are usually windfall gains that do not influence pricing decisions and thus accrue mostly to the merging parties.  Consequently, the proposed subsection (4) would rule out efficiencies that bring about economies of density and efficiencies that bring about industry rationalization, such as the elimination of set-up or change-over costs.  However, once the anticompetitive effects of increased market power have been established under section 93, there is no economic rationale for making an efficiencies defence available based on the type of efficiency.

Subsection (5) would vitiate section 96 altogether, including the proposed subsection (4) of Bill C-249, in cases where the merger is likely to result in the creation or strengthening of a dominant market position.  This additional condition implies that there is something inherently anticompetitive about acquiring or reinforcing the status of being “dominant” within a market beyond that of being able to exercise market power, and thus requires special attention in the form of an extraordinary provision within the Act.  The Commissioner made a similar argument about the status of having a dominant market position in Superior Propane without recourse to a special provision in the Act – the actual argument advanced was the case of “a merger to monopoly” – but that argument was rejected by the Tribunal.

Conventional economic thinking holds that the creation or strengthening of a dominant market position is just another way of describing market power.  The anticompetitive effects of an increase in market power are issues for determination under section 93.  Although some factors listed in section 93 are more important than others in some circumstances and just the opposite in other circumstances, it is their impact on market power and not on the label of being “dominant” in a market that matters.  And once the anticompetitive effects of an increase in market power have been established under section 93, there is no economic rationale for making available the efficiencies defence in some cases and not in others.

A secondary consideration would be the working definition of the term “dominant market position.”  Would the 35% market share “safe harbour” threshold currently used by the Bureau’s MEGs in determining the potential for acquiring “market power” be the appropriate distinguishing criterion? Or would the “dominance” definition used in the Abuse of Dominant Position provision (section 79) be more appropriate? In Laidlaw, the Tribunal held that dominance would not be presumed where market share is below 50%.(5)  Clearly, the 35% market share threshold would have been considered in section 93, so this definition would be redundant and would vitiate section 96 in every case that failed section 93.

Notwithstanding the above criticisms of the substance of Bill C-249, there is merit in reformulating the amendments introduced by the bill to achieve the same intended objectives by de-linking them from the test established in subsection 96(1).  Subsection 96(1) establishes a single test for a merger that “is likely to prevent or lessen competition substantially,” and subsections 96(2) and 96(3) limit the eligibility of certain claims of efficiency.  Instead of treating the two subsections of Bill C-249 as further limiting factors – which means that the current subsection 96(1) would have to look to subsections 96(2) through 96(5) for eligibility in the test – these two new subsections could be integrated directly into the current subsection 96(1).  In this case, subsection 96(1) would refer to three conditions that must be satisfied for a merger to be in the “public interest,” and then list these three conditions (the current condition and the two proposed in Bill C-249), which could be set up as paragraphs 96(1)(a) through (c).  Subsections 96(2) and 96(3) would then be amended to limit the eligibility of claims of efficiency for all three tests.








*  Notice:  For clarity of exposition, the legislative proposals set out in the Bill described in this text are stated as if they had already been adopted or were in force.  It is important to note, however, that bills may be amended during their consideration by the House of Commons and Senate, and have no force or effect unless and until they are passed by both Houses of Parliament, receive Royal Assent, and come into force.

(1)  Canada (Commissioner of Competition) v. Superior Propane Inc. (2000), 7 C.P.R. (4th) 385; Canada (Commissioner of Competition) v. Superior Propane Inc., 2001 FCA 104; Canada (Director of Investigation and Research) v. Hillsdown Holdings Canada Ltd. (1992), 41 C.P.R. (3rd) 289; Canada (Director of Investigation and Research) v. Imperial Oil et al., CT-89/3.

(2)  Government policies – such as CRTC telecom and cable and satellite television regulations, the dairy and poultry quota systems, airline ownership and cabotage services restrictions, Ontario’s beer and liquor distribution system, first-class mail and interprovincial trade restrictions – represent a number of such barriers.

(3)  Donald G. McFetridge, Competition Policy Issues, Research Paper Prepared for the Task Force on the Future of the Canadian Financial Services Sector, September 1998, p. 11.

(4)  Product-level efficiencies commonly accrue to the firm through the exploitation of “economies of scale”; these efficiencies reduce the long-run average unit cost of a good or service through an increased volume of production. These scale economies can also occur at the plant level when plants expand to their optimal size (assuming they have not already reached minimum efficient scale). Furthermore, at higher production rates, the mechanization of specific production and assembly functions previously carried out manually can yield scale-related resource savings. Economies of scope, whereby plant-level unit costs can be reduced when two or more products are produced together rather than separately, are also possible; these efficiencies are common in many service industries. Other efficiencies that can arise at the plant level include savings that flow from specialization, the elimination of duplication, reduced downtime and set-up costs, and a proportionately smaller base of spare parts and inventory requirements. Multi-plant-level savings can arise from plant specialization and the rationalization of various administrative and management functions, as well as R&D activities.

(5)  Director of Investigation and Research v. Laidlaw Waste Systems Ltd. (1992), 20 C.P.R. (3rd) 289.