Mergers and the Competition Act
Don McFetridge, Carleton University
• The Act empowers the Commissioner of
Competition to seek a remedial order from the
Competition Tribunal for mergers deemed likely to
prevent or lessen competition substantially, either on
a contested basis under S.92 or jointly with the
merging firms as a consent order under S.105.
• How well has this process worked? Is justice not
only done but also seen to be done? Are there
examples of false positives or false negatives? Have
remedial orders been effective? What role has
economic analysis played in the determination of the
likelihood of a substantial prevention or lessening?
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Merger Enforcement Activity
The Competition Bureau deals with between 200 and
300 merger cases per year.
80% pose no issue under the Act, 20% raise “possible
competition concerns.”
No mergers challenged by the Commissioner under S.92
between 2005 and 2010.
Only Tribunal decision under S.92 since 2000 was CWH
in 2004. No jurisprudence since then.
Remedy of choice for a substantial prevention/lessening
of competition is a consent order. Change from the use
of undertakings in the early days.
In some cases, a foreign consent order also serves a
remedy in Canada (Nufarm/A.H.Marks, BASF/Ciba,
Schering-Plough).
Consent Orders
• Consent order process was facilitated by an amendment to
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S.105 in 2002.
Under amended S.105, a consent order can simply be
registered with the Tribunal without supporting evidence
and with limited scope for intervenors. Prior to this, a
proposed order had to be approved by the Tribunal and
could be contested by intervenors.
Contrast Suncor/PetroCanada (2009) and Imperial
Oil/Texaco (1989).
The process is efficient and may conform to the practice of
administrative determination elsewhere.
Leaves MEGS and TBs in place of jurisprudence. How
much do TBs reveal about the techniques used to estimate
the magnitude of anti-competitive effects?
Remedies under consent orders
• Consent orders emphasize structural remedies.
• Divestiture of facilities (CWH, Agricore United, Saskpool,
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Suncor, Cineplex)
Divestiture of equipment (WSI/BFI, Superior Plus)
Divestiture of products, brands or lines of business (Akzo
Nobel, Pfizer/Wyeth, Johnson & Johnson)
Divestiture of subsidiaries (Ticketmaster), JV interests
(Saskpool/JRI)
Divestiture of contracts (WSI/BFI), licenses
(Teva/Ratiopharm, Novartis/Alcon)
Behavioral remedies include access to facilities, supply
guarantees, non-bundling, non-exclusive dealing
(Suncor, Agrium/CF, Ticketmaster, Akzo Nobel)
Results of Enforcement Activity
• Bureau Merger Remedies Guidelines (2006): Emphasis
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on structural remedies and timeliness
The divestiture process has been lengthy in some cases
(Agricore United) and failed in others (Chapters/Indigo,
Rona)
Effectiveness of remedies being studied by the Bureau.
Neumann/Sanderson (2007) studied Bureau’s decisionmaking process in 2 mergers and a JV not challenged by
the Commissioner
Hutton & Hogan (CCR 2008) – suggest measures to
increase transparency and fairness
Recent flurry of consent orders – what has changed?
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Major Cases
(in terms of reported Bureau spending, 2005-2010)
Suncor/PetroCanada (consent, 2009, divestiture, supply
agreement)
Ticketmaster/Live Nation (consent, 2010, divestiture,
licensing)
Agrium/CF (consent, 2009, partial divestiture, supply
agreement)
Labatt/Lakeport (insufficient evidence to challenge,
2009)
Google/Yahoo (TB 2008, transaction abandoned)
XL Foods/Tyson Foods (TB 2009, Bureau to monitor)
Major Cases continued
• Abitibi/Bowater (TB 2007, “insufficient evidence” for
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challenge)
BellGlobemedia/CHUM (TB 2007, “no grounds for
challenge”, CRTC subsequently required divestiture of 5
TV stations)
Cargill/Better Beef (TB 2005, no grounds for challenge)
Tolko/Riverside (interim hold-separate consent, 2004, no
challenge)
Grain Handling
- UGG/Agricore Coop (consent, 2002)
- Saskpool/Agricore United (consent, 2007)
- JRI (consent, 2007)
Interesting Issues of Economics
• Cargill/Better Beef – effect of BSE on the geographic
market for live cattle and monopsony power of beef
packers (Church & Gordon, 2007 econometric analysis)
• CWS - alternative theories of the market – price-taking
with marginal suppliers in Michigan versus price-setting
spatial oligopoly (Baye vs. Hay)
• Superior/ICG - prediction of price effect of merger (LAAIDS model vs. various SCP models) (Ward vs.
Carlton/Bamberger)
• Rogers/Microcell, Labatt/Lakeport – potential maverick
model of interdependence.
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Proposed Revision of the MEGS
The MEGS were published in 1991 with revised MEGS
published in 2004.
There has been no merger jurisprudence since 2004 and
no change in the substantive provisions of the
legislation.
Revision appears driven by changes in guidelines
elsewhere.
Possible issues include movement away from market
definition toward direct analysis of competitive effects.
A prominent form of this direct analysis is the calculation
of Upward Price Pressure based on the pre-merger
Lerner Indexes of the merging firms and the Diversion
Ratio between them.
UPP always predicts a price increase and has been
much debated.
Proposed Revision of the MEGS
• Coordinated effects – moving from canvassing facilitating
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practices and structures to inferences about the
magnitude of the anti-competitive effect
Changing the market share and concentration safe
harbour thresholds
Replacing concentration measures (especially CR4) with
the number of competitors, diversion ratios and ΔHHI
Defining a maverick (vs. vigorous and effective)
Clarifying criteria for inferring the likelihood and timing
of new entry
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S.96?
Useful commentaries on Superior Propane (2000) by
Mathewson & Winter (CCR 2000), Ware (CCR 2001)
Pursuant to the FCA decision in Superior Propane,
domestic transfers of surplus from “consumers” to
“producers” may not be regarded as netting out.
Surplus is deemed to be worth more in the hands of
“consumers” than in the hands of “producers” if the
former are “worse off” than the latter (balancing weights
standard). Useful commentary on debate by Sanderson
(CCR 2006)
In Superior Plus (TB, 2009) efficiency gains were found
by the Bureau as insufficient to offset the anticompetitive effect of a merger to monopoly. Not stated
if weights applied. Settled with a consent order.
S.96 continued
• 2009 Efficiencies Bulletin suggests “relative profitability”
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weights on B-to-B transfers. Others suggest
presumptive neutrality of B-to-B transfers. Suggested
weights on C-to-B transfers based on relative income
and whether product is a necessity.
The Efficiencies Bulletin also confines efficiencies to S.96
except when they reduce interdependence by increasing
cost asymmetries.
This is could be incompatible with the adoption of the
UPP methodology which typically incorporates projected
reductions in marginal cost in determination of the price
effect of a proposed merger.
Conclusions
• The process of debating, refining and polishing the
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MEGS substitutes for merger jurisprudence in Canada.
While non-transparent, the consent order process
economizes on transaction costs. Could TBs be more
timely and perhaps more instructive for economists?
Is there something between “rubber stamping” consent
orders and the IOL circus?
The merger review process under the Competition Act
has managed to focus on the competitive process and
largely to immunize itself from rent-seeking.
This is not true of merger review by other government
agencies. One of the alleged sins of the proposed BHPPotash Corp. merger was that it was pro-competitive.