Mergers and the Competition ActMergers and the Competition ActDon McFetridge, Carleton UniversityDon McFetridge, Carleton University

• The Act empowers the Commissioner of The Act empowers the Commissioner of Competition to seek a remedial order from the Competition to seek a remedial order from the Competition Tribunal for mergers deemed Competition Tribunal for mergers deemed likely to prevent or lessen competition likely to prevent or lessen competition substantially, either on a contested basis substantially, either on a contested basis under S.92 or jointly with the merging firms as under S.92 or jointly with the merging firms as a consent order under S.105.a consent order under S.105.

• How well has this process worked? Is justice How well has this process worked? Is justice not only done but also seen to be done? Are not only done but also seen to be done? Are there examples of false positives or false there examples of false positives or false negatives? Have remedial orders been negatives? Have remedial orders been effective? What role has economic analysis effective? What role has economic analysis played in the determination of the likelihood of played in the determination of the likelihood of a substantial prevention or lessening? a substantial prevention or lessening?

Merger Enforcement ActivityMerger Enforcement Activity• The Competition Bureau deals with between 200 The Competition Bureau deals with between 200

and 300 merger cases per year.and 300 merger cases per year.

• 80% pose no issue under the Act, 20% raise 80% pose no issue under the Act, 20% raise “possible competition concerns.”“possible competition concerns.”

• No mergers challenged by the Commissioner under No mergers challenged by the Commissioner under S.92 between 2005 and 2010. S.92 between 2005 and 2010.

• Only Tribunal decision under S.92 since 2000 was Only Tribunal decision under S.92 since 2000 was CWH in 2004. No jurisprudence since then. CWH in 2004. No jurisprudence since then.

• Remedy of choice for a substantial Remedy of choice for a substantial prevention/lessening of competition is a consent prevention/lessening of competition is a consent order. Change from the use of undertakings in the order. Change from the use of undertakings in the early days. early days.

• In some cases, a foreign consent order also serves In some cases, a foreign consent order also serves a remedy in Canada (Nufarm/A.H.Marks, BASF/Ciba, a remedy in Canada (Nufarm/A.H.Marks, BASF/Ciba, Schering-Plough).Schering-Plough).

Consent OrdersConsent Orders

• Consent order process was facilitated by an Consent order process was facilitated by an amendment to S.105 in 2002. amendment to S.105 in 2002.

• Under amended S.105, a consent order can simply Under amended S.105, a consent order can simply be registered with the Tribunal without supporting be registered with the Tribunal without supporting evidence and with limited scope for intervenors. evidence and with limited scope for intervenors. Prior to this, a proposed order had to be approved by Prior to this, a proposed order had to be approved by the Tribunal and could be contested by intervenors.the Tribunal and could be contested by intervenors.

• Contrast Suncor/PetroCanada (2009) and Imperial Contrast Suncor/PetroCanada (2009) and Imperial Oil/Texaco (1989).Oil/Texaco (1989).

• The process is efficient and may conform to the The process is efficient and may conform to the practice of administrative determination elsewhere.practice of administrative determination elsewhere.

• Leaves MEGS and TBs in place of jurisprudence. Leaves MEGS and TBs in place of jurisprudence. How much do TBs reveal about the techniques used How much do TBs reveal about the techniques used to estimate the magnitude of anti-competitive to estimate the magnitude of anti-competitive effects?effects?

Remedies under consent ordersRemedies under consent orders

• Consent orders emphasize Consent orders emphasize structural remediesstructural remedies..• Divestiture of facilities (CWH, Agricore United, Divestiture of facilities (CWH, Agricore United,

Saskpool, Suncor, Cineplex) Saskpool, Suncor, Cineplex) • Divestiture of equipment (WSI/BFI, Superior Plus)Divestiture of equipment (WSI/BFI, Superior Plus)• Divestiture of products, brands or lines of business Divestiture of products, brands or lines of business

(Akzo Nobel, Pfizer/Wyeth, Johnson & Johnson)(Akzo Nobel, Pfizer/Wyeth, Johnson & Johnson)• Divestiture of subsidiaries (Ticketmaster), JV Divestiture of subsidiaries (Ticketmaster), JV

interests (Saskpool/JRI)interests (Saskpool/JRI)• Divestiture of contracts (WSI/BFI), licenses Divestiture of contracts (WSI/BFI), licenses

(Teva/Ratiopharm, Novartis/Alcon)(Teva/Ratiopharm, Novartis/Alcon)• Behavioral remediesBehavioral remedies include access to facilities, include access to facilities,

supply guarantees, non-bundling, non-exclusive supply guarantees, non-bundling, non-exclusive dealing (Suncor, Agrium/CF, Ticketmaster, Akzo dealing (Suncor, Agrium/CF, Ticketmaster, Akzo Nobel) Nobel)

Results of Enforcement ActivityResults of Enforcement Activity

• Bureau Merger Remedies Guidelines (2006): Bureau Merger Remedies Guidelines (2006): Emphasis on structural remedies and timelinessEmphasis on structural remedies and timeliness

• The divestiture process has been lengthy in some The divestiture process has been lengthy in some cases (Agricore United) and failed in others cases (Agricore United) and failed in others (Chapters/Indigo, Rona)(Chapters/Indigo, Rona)

• Effectiveness of remedies being studied by the Effectiveness of remedies being studied by the Bureau.Bureau.

• Neumann/Sanderson (2007) studied Bureau’s Neumann/Sanderson (2007) studied Bureau’s decision-making process in 2 mergers and a JV decision-making process in 2 mergers and a JV not not challengedchallenged by the Commissioner by the Commissioner

• Hutton & Hogan (CCR 2008) – suggest measures to Hutton & Hogan (CCR 2008) – suggest measures to increase transparency and fairnessincrease transparency and fairness

• Recent flurry of consent orders – what has changed? Recent flurry of consent orders – what has changed?

Major Cases Major Cases (in terms of reported Bureau spending, 2005-2010)(in terms of reported Bureau spending, 2005-2010)

• Suncor/PetroCanada (consent, 2009, divestiture, Suncor/PetroCanada (consent, 2009, divestiture, supply agreement)supply agreement)

• Ticketmaster/Live Nation (consent, 2010, Ticketmaster/Live Nation (consent, 2010, divestiture, licensing) divestiture, licensing)

• Agrium/CF (consent, 2009, partial divestiture, Agrium/CF (consent, 2009, partial divestiture, supply agreement)supply agreement)

• Labatt/Lakeport (insufficient evidence to Labatt/Lakeport (insufficient evidence to challenge, 2009)challenge, 2009)

• Google/Yahoo (TB 2008, transaction abandoned) Google/Yahoo (TB 2008, transaction abandoned)

• XL Foods/Tyson Foods (TB 2009, Bureau to XL Foods/Tyson Foods (TB 2009, Bureau to monitor) monitor)

Major Cases continuedMajor Cases continued

• Abitibi/Bowater (TB 2007, “insufficient evidence” Abitibi/Bowater (TB 2007, “insufficient evidence” for challenge)for challenge)

• BellGlobemedia/CHUM (TB 2007, “no grounds for BellGlobemedia/CHUM (TB 2007, “no grounds for challenge”, CRTC subsequently required challenge”, CRTC subsequently required divestiture of 5 TV stations)divestiture of 5 TV stations)

• Cargill/Better Beef (TB 2005, no grounds for Cargill/Better Beef (TB 2005, no grounds for challenge)challenge)

• Tolko/Riverside (interim hold-separate consent, Tolko/Riverside (interim hold-separate consent, 2004, no challenge) 2004, no challenge)

• Grain HandlingGrain Handling- UGG/Agricore Coop (consent, 2002)- UGG/Agricore Coop (consent, 2002)- Saskpool/Agricore United (consent, 2007)- Saskpool/Agricore United (consent, 2007)- JRI (consent, 2007)- JRI (consent, 2007)

Interesting Issues of EconomicsInteresting Issues of Economics

• Cargill/Better Beef – effect of BSE on the geographic Cargill/Better Beef – effect of BSE on the geographic market for live cattle and monopsony power of beef market for live cattle and monopsony power of beef packers (Church & Gordon, 2007 econometric packers (Church & Gordon, 2007 econometric analysis)analysis)

• CWS - alternative theories of the market – price-CWS - alternative theories of the market – price-taking with marginal suppliers in Michigan versus taking with marginal suppliers in Michigan versus price-setting spatial oligopoly (Baye vs. Hay)price-setting spatial oligopoly (Baye vs. Hay)

• Superior/ICG - prediction of price effect of merger Superior/ICG - prediction of price effect of merger (LA-AIDS model vs. various SCP models) (Ward vs. (LA-AIDS model vs. various SCP models) (Ward vs. Carlton/Bamberger)Carlton/Bamberger)

• Rogers/Microcell, Labatt/Lakeport – potential Rogers/Microcell, Labatt/Lakeport – potential maverick model of interdependence. maverick model of interdependence.

Proposed Revision of the MEGSProposed Revision of the MEGS• The MEGS were published in 1991 with revised The MEGS were published in 1991 with revised

MEGS published in 2004.MEGS published in 2004.• There has been no merger jurisprudence since There has been no merger jurisprudence since

2004 and no change in the substantive provisions 2004 and no change in the substantive provisions of the legislation.of the legislation.

• Revision appears driven by changes in guidelines Revision appears driven by changes in guidelines elsewhere.elsewhere.

• Possible issues include movement away from Possible issues include movement away from market definition toward direct analysis of market definition toward direct analysis of competitive effects.competitive effects.

• A prominent form of this direct analysis is the A prominent form of this direct analysis is the calculation of Upward Price Pressure based on the calculation of Upward Price Pressure based on the pre-merger Lerner Indexes of the merging firms pre-merger Lerner Indexes of the merging firms and the Diversion Ratio between them. and the Diversion Ratio between them.

• UPP always predicts a price increase and has UPP always predicts a price increase and has been much debated. been much debated.

Proposed Revision of the MEGSProposed Revision of the MEGS

• Coordinated effects – moving from canvassing Coordinated effects – moving from canvassing facilitating practices and structures to inferences facilitating practices and structures to inferences about the magnitude of the anti-competitive about the magnitude of the anti-competitive effecteffect

• Changing the market share and concentration Changing the market share and concentration safe harbour thresholds safe harbour thresholds

• Replacing concentration measures (especially Replacing concentration measures (especially CR4) with the number of competitors, diversion CR4) with the number of competitors, diversion ratios and ratios and ΔΔHHIHHI

• Defining a maverick (vs. vigorous and effective)Defining a maverick (vs. vigorous and effective)

• Clarifying criteria for inferring the likelihood and Clarifying criteria for inferring the likelihood and timing of new entrytiming of new entry

S.96?S.96?• Useful commentaries on Superior Propane (2000) by Useful commentaries on Superior Propane (2000) by

Mathewson & Winter (CCR 2000), Ware (CCR 2001)Mathewson & Winter (CCR 2000), Ware (CCR 2001)

• Pursuant to the FCA decision in Superior Propane, Pursuant to the FCA decision in Superior Propane, domestic transfers of surplus from “consumers” to domestic transfers of surplus from “consumers” to “producers” may not be regarded as netting out. “producers” may not be regarded as netting out. Surplus is deemed to be worth more in the hands of Surplus is deemed to be worth more in the hands of “consumers” than in the hands of “producers” if the “consumers” than in the hands of “producers” if the former are “worse off” than the latter (balancing former are “worse off” than the latter (balancing weights standard). Useful commentary on debate by weights standard). Useful commentary on debate by Sanderson (CCR 2006)Sanderson (CCR 2006)

• In Superior Plus (TB, 2009) efficiency gains were In Superior Plus (TB, 2009) efficiency gains were found by the Bureau as insufficient to offset the anti-found by the Bureau as insufficient to offset the anti-competitive effect of a merger to monopoly. Not competitive effect of a merger to monopoly. Not stated if weights applied. Settled with a consent stated if weights applied. Settled with a consent order.order.

S.96 continuedS.96 continued

• 2009 Efficiencies Bulletin suggests “relative 2009 Efficiencies Bulletin suggests “relative profitability” weights on B-to-B transfers. Others profitability” weights on B-to-B transfers. Others suggest presumptive neutrality of B-to-B transfers. suggest presumptive neutrality of B-to-B transfers. Suggested weights on C-to-B transfers based on Suggested weights on C-to-B transfers based on relative income and whether product is a necessity.relative income and whether product is a necessity.

• The Efficiencies Bulletin also confines efficiencies to The Efficiencies Bulletin also confines efficiencies to S.96 except when they reduce interdependence by S.96 except when they reduce interdependence by increasing cost asymmetries.increasing cost asymmetries.

• This is could be incompatible with the adoption of This is could be incompatible with the adoption of the UPP methodology which typically incorporates the UPP methodology which typically incorporates projected reductions in marginal cost in projected reductions in marginal cost in determination of the price effect of a proposed determination of the price effect of a proposed merger. merger.

ConclusionsConclusions

• The process of debating, refining and polishing the The process of debating, refining and polishing the MEGS substitutes for merger jurisprudence in Canada.MEGS substitutes for merger jurisprudence in Canada.

• While non-transparent, the consent order process While non-transparent, the consent order process economizes on transaction costs. Could TBs be more economizes on transaction costs. Could TBs be more timely and perhaps more instructive for economists? timely and perhaps more instructive for economists?

• Is there something between “rubber stamping” Is there something between “rubber stamping” consent orders and the IOL circus?consent orders and the IOL circus?

• The merger review process under the Competition Act The merger review process under the Competition Act has managed to focus on the competitive process and has managed to focus on the competitive process and largely to immunize itself from rent-seeking. largely to immunize itself from rent-seeking.

• This is not true of merger review by other government This is not true of merger review by other government agencies. One of the alleged sins of the proposed agencies. One of the alleged sins of the proposed BHP-Potash Corp. merger was that it was pro-BHP-Potash Corp. merger was that it was pro-competitive. competitive.