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Consciously Perplexed: Coordinated Behaviour in Abuse of Dominance Policy
Carolyn McCarthy
TABLE OF CONTENTS Page Nos.
INTRODUCTION .........................................................................................................................2
SECTION 1. COORDINATED BEHAVIOUR ............................................................................3 1.1 Explicit Collusion .......................................................................................................4 1.2 Tacit Collusion ...........................................................................................................4 1.3 Conscious Parallelism ................................................................................................5
SECTION 2. THE TRADITIONAL VIEW ..................................................................................6 2.1 The Bureau’s Current Guidelines ...............................................................................6 2.2 The CANYPS and Interac Cases ................................................................................8
2.2.1 The CANYPS Case .........................................................................................8 2.2.2 The Interac Case ..............................................................................................9 2.2.3 Still No Answers ............................................................................................10
SECTION 3. THE BUREAU’S NEW APPROACH ..................................................................12 3.1 The New Proposed Guidelines .................................................................................12 3.2 The WSI / WM Consent Agreement .......................................................................12
SECTION 4. COORDINATED BEHAVIOUR UNDER THE OTHER TWO PILLARS OF CANADIAN COMPETITION LAW ............................................................................................13
4.1 Conspiracy ................................................................................................................14 4.1.1 Criminal Conspiracy ......................................................................................14 4.1.2 Civil Agreements ...........................................................................................16
4.2 Mergers .....................................................................................................................16 4.3 Merits of the Argument for Internal Cohesion .........................................................18
SECTION 5. THE EU APPROACH TO COLLECTIVE DOMINANCE ..................................19 5.1 The EU Treaty’s Article 82 ......................................................................................19 5.2 Theoretical Approaches to Collective Dominance ...................................................20
5.2.1 The Single Entity Approach ..........................................................................20 5.2.2 The Economic/Legal/Structural Links Approach ..........................................20
5.3 The DG’s 2005 Discussion Paper ............................................................................21
SECTION 6. THE POLICY IMPLICATIONS FOR THE BUREAU ........................................25 6.1 Unanticipated Consequences and Unanswered Questions .......................................25 6.2 Canada’s Wireless Industry ......................................................................................26
CONCLUSION .......................................................................................................................29
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Consciously Perplexed:
Coordinated Behaviour in Abuse of Dominance Policy I ntr oduction
The issue of coordinated behaviour in joint abuse of dominance has become increasingly
relevant in competition law policy discussions. The Competition Bureau (the “Bureau”)
introduced new proposed abuse of dominance guidelines that signal a more aggressive
enforcement of coordinated behaviour.1 In the proposed guidelines, the Bureau states that it will
now consider two or more firms to hold a jointly dominant position “where there are similar
practices”.2
This new proposed approach has some theoretical and practical difficulties. Of
particular concern is the notion of conscious parallelism and its potential to serve as the
foundation for a finding of joint abuse of dominance in Canada.
It is difficult to elaborate coherent guidelines, especially in areas where there has been very little
development in case law on the subject, and yet, it is even more important to have clear and
coherent guidelines in such areas. The issue of how to approach conscious parallelism in
oligopolistic markets is particularly difficult to resolve and it is an example of the ways in which
the Bureau’s new proposed guidelines could be theoretically and practically problematic.
This paper will discuss the Bureau’s new proposed approach to coordinated joint abuse of
dominance under several different angles. The first section will lay the conceptual groundwork
1 Competition Bureau Canada, Updated Enforcement Guidelines, Draft for Public Consultation, “The Abuse of Dominance Provisions (Sections 78 and 79 of the Competition Act)” (January 2009) [Draft Guidelines]. 2 Draft Guidelines, supra note 1 at 15.
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by explaining and defining certain types of coordinated behaviour. The second section will
outline the Bureau’s traditional view on coordinated behaviour under the abuse of dominance
provisions and discuss the two joint abuse of dominance proceedings that have come before the
Tribunal to date. In the third section, the Bureau’s new proposed guidelines will be discussed, as
well as a recent consent agreement case. The fourth section will examine the approach to
coordinated behaviour under the Competition Act’s (the “Act”)3
merger and conspiracy
provisions. We will also discuss the merits of internal cohesion. In other words, should there be a
cohesive approach under what is said to be the three pillars of Canadian competition law;
conspiracy, merger review and abuse of dominance? In section five, we will look to the
European Union and analyze the treatment of coordinated behaviour under Article 82 of the EU
Treaty, to see what lessons can be learned from their approach. The sixth section will contain a
discussion of some of the possible consequences of the Bureau’s new proposed approach,
identify some questions that should be answered and take a brief look at Canada’s wireless
industry. Finally, some suggestions for alternative approaches to the Bureau’s proposed policy
initiative will be made in the conclusion.
Section 1. C oor dinated B ehaviour
Coordinated behaviour can take various forms. It is present when actions taken by individual
firms influence the actions taken by competitors in a particular market. For example, if in raising
its prices, Firm A influences Firms B, C and D to raise their prices as well, the behaviour of all
four firms may be said to be coordinated. It is important to point out that coordinated behaviour
3 R.S.C. 1985, c. C-34.
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is not necessarily anti-competitive. Often it is simply a characteristic of a healthy, competitive
marketplace. However, coordination may have varying degrees, ranging from conscious
parallelism to tacit and even explicit collusion.
1.1 Explicit Collusion
In the case of explicit collusion, firms coordinate their actions through explicit agreements,
which can be written or verbal. Agreements or conspiracies to reduce competition may result
from explicit collusion and this type of consented action between competitors could, for
example, take the form of self-enforcing price-fixing agreements.4 Other examples of explicit
collusion include agreements to restrict production output levels or to allocate customers and
markets.5
1.2 Tacit Collusion
Tacit collusion is more difficult to identify, but its detrimental effects on competition can be just
as severe as those of explicit collusion. By definition, tacit collusion involves an absence of
explicit agreement between firms. Behaviour is coordinated tacitly, without direct
communication. Typically, firms will take independent actions, but these actions will be taken
with the full knowledge and understanding that their competitors, who are participating in the
collusion, are going to adjust their actions accordingly. As some authors have very aptly put it,
the difference between tacit collusion and explicit collusion is “the difference between a wink
4 Felix E. Mezzanotte, “Tacit collusion as economic links in article 82 EC revisited” (2009) Eur. Comp. L. Rev. at 4. 5 A. Neil Campbell & Omar P. Hamam, “Coordinated Behaviour and Conscious Parallelism Under Canadian Conspiracy, Abuse and Merger Law” (May 2003) (available online at mcmillan.ca) at 1.
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and a handshake […]”.6 As such, the examples of anti-competitive behaviour in our discussion
of explicit collusion could also be arrived at by firms through tacit collusion. Essentially, without
any explicit communication between them, competitors can arrive at an understanding by
communicating their ideas and signalling their intentions.7
From an evidentiary perspective,
however, tacit collusion can be more difficult to prove.
1.3 Conscious Parallelism
A third form of coordinated behaviour is conscious parallelism. The term is often used to
describe behaviour between firms in an oligopolistic market. Oligopolies exist where a small
number of firms dominate a market. Monopolistic firms in such a market will tend to coordinate
and act interdependently. The “oligopoly problem”, as it has been called, results from a small
number of firms acting in a parallel manner in a specific market in a way that adversely affects
competition, with the end result being harm to consumers.8 Such parallel behaviour may be
qualified as conscious parallelism. Coordinated behaviour is achieved because dominant firms in
an oligopolistic market recognize their interdependence and match, or adjust to, one another’s
behaviour.9 Conscious parallelism, while difficult to distinguish from tacit collusion, is
distinguishable by an absence of any form of tacit agreement or understanding.10
6 Ibid. at 2.
Many theorists
7 Thomas W. Ross & Andy Baziliauskas, “Lessening of Competition in Mergers under the Competition Act: Unilateral and Interdependence Effects” (2000) Can. Bus. L.J. 373 at 389. 8 Sophie Stephanou, “Collective Dominance Through Tacit Coordination: The Case for Non-Coordination Between Article 82 and Merger Control “Collective Dominance” Concepts” (October 2009) GCP: The Antitrust Chronicle at 3. 9 Ross & Baziliauskas, supra note 7 at 392. 10 Campbell & Hamam, supra note 5 at 2.
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on the subject consider conscious parallelism to actually be a natural, rational behaviour for
oligopolists to adopt, given the interdependence inherent in such markets.11
Section 2. T he T r aditional V iew
2.1 The Bureau’s Current Guidelines
The Bureau’s existing Enforcement Guidelines on the Abuse of Dominance Provisions12, which
were introduced in July 2001, explain that the Act clearly contemplates cases where a group of
unaffiliated firms possesses market power.13
A group of firms that collectively possesses market power may be able to coordinate its actions in a manner that allows the market price to be profitably increased above the non-coordinated price levels without the firms entering into an explicit agreement. Firms within an oligopoly normally base their decisions on how their rivals have behaved in the past. In addition, firms recognize that their current decisions may affect their rival’s future reactions. The fact that firms recognize these interactions over a longer time period results in competitive response strategies becoming more complex. It is possible for firms to act in a “consciously parallel” fashion, thereby achieving higher profits than would be the case in a competitive environment.
In these guidelines, the Bureau performs a brief
analysis of the market effects on firms within an oligopoly but states, however, that coordinated
behaviour in the form of conscious parallelism will not be sufficient for a finding of joint abuse
of dominance. The ways in which firms within an oligopoly can come to behave in a consciously
parallel manner, as described by the Bureau, are as follows:
14
11 See Ross & Baziliauskas, supra note 7 at 392. 12 Competition Bureau Canada, Enforcement Guidelines on the Abuse of Dominance Provisions (July 2001) online at: www.competitionbureau.gc.ca [Current Guidelines]. 13 Ibid. at 16. 14 Ibid.
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Furthermore, the Bureau clearly affirms that, in keeping with the jurisprudence relating to the
criminal conspiracy provisions at that time, conscious parallelism with respect to the abuse
provisions will not be condemned.15 According to the Bureau, “something more than mere
conscious parallelism must exist before the Bureau can reach a conclusion that firms are
participating in some form of coordinated activities”.16 Finally, on the issue of what we consider
to be tacit collusion, the Bureau’s position is that it can be dealt with under the abuse provisions.
Specifically, the Bureau states that “the ability of a group of firms to coordinate actions without
entering into an explicit agreement can be addressed under the abuse provisions”.17
One of the challenges with these guidelines is that there is no concrete guidance on how issues of
tacit collusion and conscious parallelism in joint abuse of dominance cases will actually be
addressed, other than the more general position that tacit collusion falls under the purview of
those provisions, but that conscious parallelism does not. How does one distinguish between the
two in an empirical way? And on what basis will the qualification of the coordinated behaviour
as tacit collusion or conscious parallelism be made? Will the analysis of the existing market
structure be a tributary for the qualification? These are some of the questions that the existing
guidelines raise and why they may, ultimately, be theoretically impracticable.
15 Ibid. at 17. 16 Ibid. at 16-17. 17 Ibid at 17.
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2.2 The CANYPS and Interac Cases
To date, there have only been two cases litigated before the Competition Tribunal that have dealt
with the issue of joint abuse of dominance. They are the “CANYPS”18 and “Interac”19
cases.
2.2.1 T he C A NY PS C ase
This case came before the Competition Tribunal in 1994 and related to telephone directories
commonly known as “Yellow Pages”. The respondents were telephone companies that generally
held regional monopolies. With regards to the telephone directory publishing side of their
business, the Director of Investigation and Research (the “Director”)20 submitted that, in their
respective territories, the Respondents controlled the telephone directory publishing market and
that together they jointly controlled this class of business for the purposes of subsection 79(1)a)
of the Act.21
At issue was an agreement entered into between the Respondents according to which national
advertisers were to be allocated amongst themselves “on the basis that the Respondent in whose
territory the head office of a national advertiser was located would function as the selling
company for the placement of any advertisements which that national advertiser placed”.22
18 Director of Investigation and Research v. AGT Directory Limited, CT-1994-002 (Competition Tribunal) [CANYPS].
Essentially, this agreement constituted an allocation of markets and an agreement not to
compete. The outcome of the case was that the consent order directed the Respondents to stop
19 Director of Investigation and Research v. Bank of Montreal et al., CT-1995-002 (Competition Tribunal) [Interac]. 20 The Commissioner of Competition replaced the Director of Investigation and Research as the person granted the statutory power to submit an application to the Tribunal. 21 CANYPS, supra note 18 (Statement of Grounds and Material Facts) at 3. 22 Ibid. at 5.
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engaging in these anti-competitive practices. One notable fact is that, because of the competitive
particularities of the telephone directory industry, the consent order left the door open for the
Director to make an “application to the Tribunal at a later date in respect of anti-competitive
practices or acts engaged in by the individual respondents in the conduct of their business”.23
2.2.2 T he I nter ac C ase
In 1995, the Director applied for a consent order as a result of an application submitted to the
Tribunal against an electronic banking network created by nine banking institutions, which
together made up the group of Respondents in the case. This banking network is more commonly
known as the “Interac” network and, at the time of the proceedings, ninety percent (90%) of the
shared cash dispensing transactions were made through the Interac network.24 The electronic
network services were provided through and controlled by one association, the Interac
Association, and the nine respondents were the founding charter members of the Interac
Association.25 Ultimately, the Interac network at the time, was the link between all automated
banking machines (“ABM”s) in Canada. As a result, the competition authorities did not consider
that there was a viable substitute for the shared network services provided by the Interac
network.26
23 Ibid. at 4. 24 Gilles Ménard, “Abuse of Dominance: Some Reflections on Recent Cases and Emerging Issues” (Remarks presented to the Conference of the Canadian Institute on Competition Law and Competitive Business Practices, 10 May 1996)(available at www.competitionbureau.gc.ca) at 5. 25 Ibid. 26 Ibid.
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The Director, in its application, alleged “that through their control over Interac and the enactment
of exclusionary by-laws governing membership in and operation of the network, [the
Respondents had] engaged in joint abuse of dominance contrary to section 79 of the Act”.27 The
Director alleged that the anti-competitive practices engaged in by the members of the Interac
Association included i) restricting access to the Interac network; ii) the creation of barriers to
product innovation; and, iii) access and service pricing.28
The consent order directed the Interac Association to, inter alia, amend the eligibility
requirements in their by-laws29 and revoke the by-law provisions imposing service access fees,
replacing the service access fees with a user fee.30
2.2.3 Still No A nswer s
As previously discussed, in both those cases, the existence of joint dominance was taken as a
given.31
27 Interac, supra note 19 at 1.
This was because there was an explicit agreement between the firms involved.
Furthermore, both cases ended with a consent order being issued by the Competition Tribunal.
As a result, because there has not yet been a fully-contested joint abuse of dominance case under
Canadian competition law, the Tribunal has not been in a position to render a decision that
establishes the requisite elements for a finding of joint abuse of dominance. In order to provide a
cohesive position on joint abuse of dominance from which the business and legal communities
can obtain guidance, a thorough policy initiative still needs to be undertaken.
28 Ménard, supra note 24 at 5. 29 Interac, supra note 19 at 10. 30 Ibid. at 13. 31 Current Guidelines, supra note 12 at 16.
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In speaking on the subject of the Tribunal’s recent joint abuse of dominance cases back in May
1996, the Deputy Director of Investigation and Research, Gilles Ménard, made the following
remarks:
One of the more interesting issues that emanates from the [CANYPS] application is the applicability of the abuse provisions to situations involving joint dominance. Given the jurisprudence on the words “one or more persons”, there was no difficulty in establishing joint dominance in the presence of an agreement in the [CANYPS] application. The more interesting interpretation of the words “one or more persons” would be to situations where an informal arrangement or even just parallel behavior exists. There is a wide spectrum of behaviour ranging from explicit agreements to situations of pure recognition of each other’s mutual interest which abuse of dominance provisions address. The frontiers of this section have not been tested yet. This is certainly a challenge that we would not hesitate to take on if the appropriate circumstances should arise.32
While those remarks were made in 1996, they demonstrate just how uncharted the issue of
coordinated behaviour in joint abuse of dominance cases was and still is. Given that there is not
yet any cohesive position, it may be a worthwhile exercise to look elsewhere for inspiration, in
order to establish a thorough policy initiative. Consequently, we propose, on the one hand, to
look at how these notions of conscious parallelism and tacit collusion are addressed under the
conspiracy and merger provisions of the Competition Act and to discuss the merits of internal
cohesion between what is often said to be the three pillars of Canadian competition law. On the
other hand, we propose to look at the EU’s approach to collective dominance. In order to
complete the picture, however, we will first briefly discuss the Bureau’s new proposed
guidelines on abuse of dominance and the recent Waste Consent Agreement.
32Ménard, supra note 24 at 4.
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Section 3. T he B ur eau’ s New A ppr oach
3.1 The New Proposed Guidelines
The Bureau’s new proposed guidelines definitely do not take the same position regarding
conscious parallelism, in that the type of discussion that was present in the existing guidelines is
no longer present in the proposed guidelines. As previously mentioned, the Bureau only states in
the proposed guidelines that it will now consider two or more firms to hold a jointly dominant
position “where there are similar practices”.33
In order to serve the important function of
assisting the business and legal communities to navigate the issue of coordinated behaviour, the
Bureau’s proposed policy objectives will need to be more fully elaborated.
3.2 The WSI / WM Consent Agreement
One case has come before the Tribunal since the new proposed abuse of dominance guidelines
were introduced.34
33 Draft Guidelines, supra note 1at 15.
This case is the first time the Bureau has applied the issue of joint dominance
to two independent firms, who were said to collectively hold a dominant market share. There
was no explicit agreement between them and there is no evidence that they were acting in a
coordinated manner. The consent agreement entered into by the parties (the “Waste Consent
Agreement”) was filed with the Competition Tribunal on June 16, 2009. The two waste
management companies involved were Waste Services (CA) Inc. (“WSI”) and Waste
Management of Canada Corporation (“WM”). They were operating in the Nanaimo district of
Vancouver Island and were said to have engaged in anti-competitive contracting practices.
34 The Commissioner of Competition v. Waste Services (CA) Inc. and Waste Management of Canada Corporation (2009)(Consent Agreement), CT-2009-003 (Competition Trib.) [Waste Case].
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What is of particular interest in this case is the fact that the joint dominance theory was applied
to two independent firms. The basis on which the Bureau determined their dominant market
share was “collective”.35
Together, WSI and WM were said to hold more than eighty (80)
percent of the share of the relevant market. No evidence of an agreement, even a tacit one, was
put forward. This seems to be the first time that “similar” practices formed the basis of an
application by the Bureau under section 79 of the Act. It would be interesting to know what
degree of coordination was involved with these “similar” practices. Where on the spectrum of
coordinated behaviour did these similar practices fall?
The lack of explicit agreement between these firms is said to reflect the “more aggressive
enforcement position from the Bureau with respect to joint abuse of dominance”.36
It is certainly
quite a contrast from the position the Bureau had previously taken under the existing guidelines.
There no longer seems to be any requirement that firms show some form of coordination. This
amounts to bringing conscious parallelism under the purview of the abuse of dominance
provisions without having elaborated on the theoretical basis for this change in policy.
Section 4. C oor dinated B ehaviour under the Other T wo Pillar s of C anadian C ompetition L aw
Conspiracy, merger review and abuse of dominance are commonly referred to as the three pillars
of Canadian competition law. Therefore, an analysis of the Bureau’s policy approach to 35 Waste Case, supra note 34 at 1. 36 George Addy et al., “Canadian Competition Bureau Steps up Enforcement against Joint Abuse of Dominance” National Magazine (August 2009) (available at http://www.cba.org).
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coordinated behaviour under the abuse of dominance provisions would not be complete without
also looking at the Bureau’s approach to the same issue in conspiracies and mergers. Should the
Bureau be adopting an approach to coordinated behaviour that is consistent between all three
pillars? Perhaps the Bureau’s merger and conspiracy guidelines can help shed light on the policy
approach that should be taken under the abuse of dominance provisions. In this section, we will
briefly outline the Bureau’s approach to coordinated behaviour as it pertains to conspiracy and
merger review and then discuss the merits of an internally cohesive approach.
4.1 Conspiracy
Important amendments to the Act’s conspiracy regime, which came into force on March 12,
2010, emphasize the distinction between criminal conspiracy and new civil reviewable matters
called civil agreements.
4.1.1 C r iminal C onspir acy
Criminal conspiracy under the Act is addressed at section 45. In anticipation of the coming into
force of the amended version of that provision, the Bureau issued new guidelines in December
2009.37 According to those guidelines, the types of agreements that fall under the purview of the
new criminal conspiracy provision are agreements “between competitors to fix prices, allocate
markets or restrict output that constitute “naked restraints” on competition”.38 The term “naked
restraint” denotes restraints that do not have a legitimate strategic or collaborative purpose.39
37 Competition Bureau Canada, Competitor Collaboration Guidelines (December 2009) at 6 (online at: www.competitionbureau.gc.ca) [Competitor Collaboration Guidelines].
Other types of agreements may still be punishable under the section 90.1 civil agreements
38 Ibid. 39 Ibid.
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provision, under certain circumstances. Those agreements are discussed in the following section
of this paper, section 4.1.2. The categories of agreements described in subsection 45(1) are per se
unlawful. Therefore, there is no requirement to prove any effect on competition as a result of
those agreements.40 The Bureau goes on to explain that in determining the existence of such an
agreement, one question that will be asked is whether the parties involved “reached a “meeting
of the minds”, either explicitly or tacitly […]”.41 Furthermore, this provision can apply even if
the agreement was not implemented and the Bureau explicitly states that covert as well as overt
agreements will be subject to punishment.42
With respect to the coordinated behaviour amongst competitors that can be qualified as
conscious parallelism, the Bureau states:
The Bureau does not consider that the mere act of independently adopting a common course of conduct with awareness of the likely response of competitors or in response to the conduct of competitors, commonly referred to as “conscious parallelism”, is sufficient to establish an agreement for the purpose of subsection 45(1). However, parallel conduct coupled with facilitating practices, such as sharing competitively sensitive information or activities that assist competitors with monitoring one another’s prices, may be sufficient to prove that an agreement was concluded between the parties.43
In light of these guidelines, it is possible to affirm that, while it is not necessary to have an
explicit agreement between parties for there to be a conspiracy, more than mere conscious
parallelism between competitors is required.
40 Ibid. at 6. 41 Ibid. 42 Ibid at 6-7. 43 Ibid. at 7.
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4.1.2 C ivil A gr eements
There is now a new provision, section 90.1, that pertains to civil agreements. The agreements
entered into under section 90.1 are not criminally punishable, nor are they illegal per se. Unlike
the new criminal conspiracy requirements, a demonstration that a civil agreement is likely to
substantially lessen or prevent competition is necessary. Furthermore, the section 90.1
agreements will be examined by the Bureau in a way that is consistent with the approach taken
under the Merger Enforcement Guidelines.44 The Bureau, in its guidelines, explains that, “[a]s
with subsection 45(1), the civil agreements provision can apply to all forms of agreements and
arrangements between competitors, regardless of degree of formality”.45 The Bureau will look at
whether the parties reached a consensus, either explicitly or tacitly. Yet, conscious parallelism is
still not considered sufficient. On that issue, the Bureau explains that it “does not consider that
the mere act of adopting a common course of conduct with awareness of the likely response of
competitors, commonly referred to as “conscious parallelism”, is sufficient to establish an
agreement for the purpose of section 90.1”.46
4.2 Mergers
Merger review policy under the Competition Act is concerned with the substantial lessening of
competition that can result from such a transaction. Section 91 of the Act broadly defines a
merger as “the acquisition or establishment, direct or indirect, by one or more persons, whether
by purchase or lease of shares or assets, by amalgamation or by combination or otherwise, of
44 Competition Bureau Canada, Merger Enforcement Guidelines (September 2004) online at : www.competitionbureau.gc.ca [Merger Guidelines]. 45 Competitor Collaboration Guidelines, supra note 37 at 19. 46 Ibid.
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control over or significant interest in the whole or a part of a business of a competitor, supplier,
customer or other person”. The fundamental test established by the merger review provisions is
whether the merger or proposed merger lessens or is likely to lessen competition in a specific
market. This lessening of competition can be achieved through coordinated behaviour.
There is very little that merger review can do to prevent anti-competitive market structures prior
to any proposed merger. However, as some authors explain, “merger review allows […] action
[to be taken] ex ante to prevent the change in market structure and dynamics that contribute to
[…] interdependence”.47
On the issue of coordinated behaviour, the Bureau’s Merger Enforcement Guidelines48
A merger may result in coordinated effects when a group of firms (that includes the merged entity), is able to profitably coordinate its behaviour because of each firm’s accommodating reactions to the conduct of others. The Bureau assesses whether a merger makes such coordinated behaviour among firms more likely or effective. Coordinated behaviour can involve tacit or express understanding on price, service levels, allocation of customers or territories, or any other dimension of competition.
state:
49
The guidelines, however, remain silent on the issue of conscious parallelism. Based on
the Bureau’s assertion that coordinated behaviour can involve tacit or express
understanding, conscious parallelism does not seem to be sufficient.
47 Ross & Baziliauskas, supra note 7 at 394. 48 Merger Guidelines, supra note 44. 49 Ibid. at 23.
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4.3 Merits of the Argument for Internal Cohesion
Each of the three pillars has its own role to play in Canadian competition law. Abuse of
dominance, for example, is concerned with pre-existing coordination, whereas the
merger review process is concerned with coordination that can result from a merger.
Furthermore, there are important differences in the burden of proof required to
demonstrate coordinated behaviour under each pillar. The burden of proof under the
criminal conspiracy provision is particularly high, requiring proof beyond a reasonable
doubt, whereas the burden of proof in relation to abuse of dominance is on the balance
of probability. The effect on competition is also evaluated differently. Agreements that
are not conspiracies or mergers can be examined under section 90.1, but they can also
be examined under the abuse of dominance provisions.50
There is no requirement to
demonstrate the effect on competition under section 45, whereas it is necessary to do so
under section 90.1. Under section 79 abuse of dominance, the negative effect must
affect a competitor in an exclusionary, predatory or disciplinary manner and have or be
likely to have a negative effect on competition.
This discussion, while not exhaustive, demonstrates some of the important differences
between the three pillars of Canadian competition law. These differences, however, do
not justify a different approach when dealing with coordinated behaviour, particularly
conscious parallelism. Therefore, there should be a cohesive approach between all three
pillars of Canadian competition law.
50 Competitor Collaboration Guidelines, supra note 37 at 2.
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Section 5. T he E U A ppr oach to C ollective Dominance
As has been the case in Canada, lawmakers in the European Union have struggled with
establishing a coherent theoretical framework for addressing coordinated behaviour in the case of
joint abuse of dominance, also called “collective dominance”.
5.1 The EU Treaty’s Article 82
Collective dominance under the EC’s Treaty51 is addressed at Article 82 which can apply when
one or more undertakings abuse of a dominant position. The term “undertakings” in the EC’s
Treaty is another word to describe firms. There are a certain number of elements that are
required in order to conclude that several undertakings are abusing their collectively dominant
position. A three-pronged test has been proposed by the European Court of Justice in the
Compagnie Maritime Belge judgment52 : (i) a collective position or collective entity, (ii)
dominance by that position or entity, and (iii) abuse by the collectively dominant position or
entity.53
It is particularly the first prong which merits discussion, as it falls within the subject
matter of this paper.
In order to conclude that two or more undertakings are abusing their dominant position, it is
necessary to establish that they are acting in a coordinated fashion in a particular market. There 51 Treaty of Nice, 2003. 52 Joined cases C-395/96 P and C-396/96 P, Compagnie maritime belge transports SA (C-395/96 P), Compagnie maritime belge SA (C-395/96 P) and Dafra-lines A/S (C-396/96 P) v Commission of the European Communities, 2000, ECR I-1365. 53 Frederic Depoortere & Georgio Motta, “The Doctrine of Collective Dominance: All Together Forever?” (October 2009) GCP: The Antitrust Chronicle; Lia Vitzilaiou & Constantinos Lambadarios, “The Slippery Slope of Addressing Collective Dominance Under Article 82 EC” (October 2009) GCP: The Antitrust Chronicle at 2.
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are two main approaches that can be used: the single entity approach and the
economic/legal/structural links approach.
5.2 Theoretical Approaches to Collective Dominance
5.2.1 T he Single E ntity A pproach
On the one hand, the single entity approach is based on the “presentation on the market
criterion”. This criterion is the predominant legal standard the EC courts have used to establish
that undertakings are collectively dominant.54 According to this criterion, firms that present
themselves on the market as a single entity can be found to be in a collectively dominant
position.55
A possible consequence of the “presentation on the market” standard could be that a number of
undertakings who together hold a collectively dominant position, but who do not present
themselves as a single entity cannot be found to be collectively dominant under Article 82.
Oligopolistic interdependence, or conscious parallelism, would therefore not be sufficient for a
finding of collective dominance under the single entity approach.56
5.2.2 T he E conomic/L egal/Str uctur al L inks A ppr oach
On the other hand, the economic/legal/structural links approach can also serve as the basis for a
finding of collective dominance. Such links can stem from cooperation or tariff agreements,
54 Depoortere & Motta, supra note 53 at 3. 55 Ibid. 56 Ibid. at 4.
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interconnections between undertakings, such as shared management and cross-shareholdings,
and even tacit collusion between undertakings in a tight oligopoly.57 In this last case, as one
author writes, “the concept of collective dominance is one that can apply where the relationship
between the abusing firm is one of tacit collusion; that is, where the market conditions are such
that there is effectively no competition between the firms and they act as one.”58 Ultimately, the
tacit collusion that results from the existing market conditions plays the role of economic link
between the undertakings involved.59
5.3 The DG’s 2005 Discussion Paper
The DG has also taken the position that tacit collusion can act as a foundation for collective
dominance in its own discussion paper. The DG states that “[i]n the case of collective dominance
the undertakings concerned must, from an economic point of view, present themselves or act
together on a particular market as a collective entity.”60 It is not necessary for them to act in an
identical fashion in every respect, but they must be able to adopt a common policy on the market
and act in a way that is independent of their competitors.61
The DG goes on to explain that the types of factors that can lead to a connection between
undertakings are factors such as cooperation agreements or links in law such as interdependent
57 Mezzanotte, supra note 4 at 3. 58 Stephanou, supra note 8 at 4. 59 Mezzanotte, supra note 4 at 2. 60 Commission of the European Communities, “DG Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses” (2005) at 9. 61 Ibid. at 16.
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ownership interests.62 These types of agreements or links in law, however, according to the DG,
are not necessary. The DG clearly states that a finding of collective dominance “may be based on
other connecting factors and depends on an economic assessment and, in particular, on an
assessment of the structure of the market in question. It follows that the structure of the market
and the way in which undertakings interact on the market may give rise to a finding of collective
dominance.”63
Coordination between undertakings in oligopolistic markets can be considered a connecting
factor sufficient for a finding of collective dominance. According to the DG:
Undertakings in oligopolistic markets may sometimes be able to raise prices substantially above the competitive level without having recourse to any explicit agreement or concerted practice. Coordination is more likely to emerge in markets where it is relatively simple to reach a common understanding on the terms of coordination. The simpler and more stable the economic environment, the easier it is for undertakings to reach a common understanding. Indeed, they may be able to coordinate their behaviour on the market by observing and reacting to each other’s behaviour. In other words, they may be able to adopt a common strategy that allows them to present themselves or act together as a collective entity. Coordination may take various forms. […] The ability to arrive at and sustain such co-ordination depends on a number of factors, the presence of which much be carefully examined in each case.64
The discussion paper goes on to establish three factors that must be examined. They are the
following: (i) each undertaking must be able to monitor whether or not the other undertakings are
adhering to the common policy, (ii) the implementation of the common policy must be
62 Ibid. at 16. 63 Ibid. 64 Ibid. at 16-17.
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sustainable over time , (iii) it must be established that competitive constraints do not jeopardise
the implementation of the common strategy.65
In our view, this type of common strategy, as
discussed by the DG, can be qualified as tacit collusion.
In our view, there are some problems with the DG’s reasoning. If tacit collusion can be the basis
for a finding of collective dominance, in the absence of any form of economic or structural link
between the undertakings, how does one prove tacit collusion and what are the required
thresholds in order to arrive at a conclusion that there is tacit collusion? By definition, tacit
collusion is the absence of an explicit agreement between parties. As previously mentioned, the
DG, in its discussion paper, argues that coordination between oligopolies, established through an
assessment of the structure of the market, can be a sufficient connecting factor. If one takes the
reasoning a step further, the market itself can become the justification for a finding of collective
dominance. When it is the market itself influencing the behaviour amongst competitors, in our
view, it is no longer a case of tacit collusion but rather a case of conscious parallelism. Even in
the absence of legal or economic links, oligopolistic interdependence, according to the DG’s
guidelines, becomes sufficient for a finding of collective dominance. In other words, if the
undertakings are adopting similar business practices in response to the existing oligopolistic
market structure, the competition authorities would simply have to add their individual market
shares in order for them to be found collectively dominant.66
65 Ibid. at 17.
There no longer would need to be a
demonstration of tacit collusion and a form of conscious parallelism in response to the existing
oligopolistic market structure would become punishable.
66 Ibid. at 6.
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The difficulties inherent in establishing effective policies and juridical tests to address the issue
of coordinated behaviour resulting from collective dominance, and tacit collusion and conscious
parallelism more specifically, are evidenced by the fact that the DG removed any mention of
collective dominance from the guidelines in its Article 82 enforcement priorities that were
published in 2009. These guidelines explicitly state that they relate only to abuses committed by
a single dominant undertaking.67
Therefore, in spite of the need for clear, effective policies on
the subject, the DG has abstained from providing any answers.
The EU courts have not been particularly helpful in resolving the issues either as, to date, there
has not been a case of collective dominance under Article 82 where the undertakings involved
did not have some type of contractual or structural link between them.68
Therefore, in spite of the more developed discussion of collective dominance in the DG’s 2005
discussion paper, very little guidance can be garnered from examining the EU’s approach under
Article 82. Perhaps the only lesson that should be taken from the DG’s approach would be to not
attempt to issue guidelines for an issue that is so fraught with theoretical pitfalls.
67 Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, (September 24, 2009) at para. 4. 68 Depoorterre & Motta, supra note 53 at 5.; Ibid.
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Section 6. T he Policy I mplications for the B ur eau
6.1 Unanticipated Consequences and Unanswered Questions
In our view, the Bureau’s proposed new policy approach needs to be more fully elaborated, as
there could be some uncertainty resulting from the proposed guidelines in their present form.
Uncertainty in the business world can have unanticipated, adverse consequences and we propose
to briefly mention a few of those possible unanticipated consequences. Firstly, if there is a risk
that any type of parallel behaviour can be considered sufficient under the abuse of dominance
provisions, firms may have an incentive to collude, since they will not be able to justify the
efforts required to ensure that they comply.69 Secondly, even if the result does not go so far as to
provide an incentive, the perceived risks associated with being found to have violated the abuse
of dominance provisions may produce a chilling effect on competition and impede healthy
competitive behaviour.70 Thirdly, another possible consequence could be that firms feel they
need to adjust their behaviour in such a way that it could not be perceived as being parallel,
coordinated behaviour. As a result, they may ultimately find themselves “having to take ‘non-
parallel’ actions that would be contrary to their individual economic interests” to avoid the risk.71
The legal and business communities need clear guidelines to assist firms in their business
planning. With that goal in mind, it may be useful for the Bureau, through its policy initiatives,
to answer some of the following questions. Concretely, what are the conditions that would have
to be present in order to conclude that there is joint abuse of dominance through coordination?
69 Vitzilaiou & Lambadarios, supra note 53 at 6. 70 Sandra A. Forbes & Anita Banicevic, “Abuse of Dominance: The New Frontier – Lessons Learned from Canada Pipe and the Road Ahead” (November 2005) (available at www.dwpv.com) at 17. 71 Campbell & Hamam, supra note 5 at 14.
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Could pre-existing conditions in the market be misinterpreted as coordinated abusive acts?72
How could an order be structured, where there is oligopolistic pricing, without having it amount
to price regulation?73
Developing some answers to these questions could help provide the kind of
certainty that the legal and business communities need. To assist in finding the answers,
lawmakers need to be plugged-in to the realities of the law’s application in the real world.
Therefore, let us look at Canada’s wireless industry as an example.
6.2 Canada’s Wireless Industry
Canada’s wireless industry is a prime example of an oligopolistic market, because it has three
main dominant firms which together hold a ninety-four (94) percent market share.74
Although
the market distribution may be changing as a result of new entries on the market, since the 2008
wireless spectrum auction, there is still limited spectrum available and this industry is still
fraught with competitive challenges. Many consider the dominant firms in this market to be
engaging in anti-competitive practices and yet a strong argument could be made in defence of
such a position. One could argue that the market is structured that way and that the oligopolistic
competitors’ coordinated behaviour is only coordinated to a degree that could be qualified as
conscious parallelism. In other words, it is a result of the existing market structure and not any
kind of express or tacit agreement or understanding between the dominant firms.
72 Ibid. at 18. 73 Paul S. Crampton, “The Law and Economics of Mergers and Abuse of Dominant Position” (Paper presented at the 1996 Annual Competition Law Conference) at 4. 74 CRTC Communications Monitoring Report, 2009, (available at http://www.crtc.gc.ca/eng/publications/reports/policymonitoring/2009/cmr55.htm) at 1.
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Legislative attempts have been introduced to address some of the purported anti-competitive
practices that exist in Canada’s wireless market. In Quebec, amendments to the Consumer
Protection Act75 came into force on June 30, 2010.76 Those changes are said to have been made
in part to “prohibit what [are] abusive business practices by communications service providers
like cellphone companies.77
Some of the new restrictions placed on cellular companies’
contracting practices include limits on the penalties that can be imposed upon cancellation of the
contract. Those penalties will no longer be allowed to exceed the value of the cellphone provided
when a customer signs a contract. Also, fixed-term contracts will not be automatically renewable
for more than sixty (60) days and contract terms will not be unilaterally modifiable. These new
restrictions, however, will only apply to contracts entered into on or after June 30, 2010.
This legislative initiative, however, is limited to contracting practices within Quebec and many
wireless companies operate nationally. Furthermore, while consumer protection legislation
protects consumers, many of the effects on competition that stem from anti-competitive practices
cannot be addressed by such legislation. Therefore, the Act may be a better-suited vehicle for
addressing the purported anti-competitive practices in Canada’s wireless industry.
In 1996, the Deputy Director of Investigation and Research, Gilles Ménard, affirmed that the
Bureau would not hesitate to take on the challenge of testing the frontiers of the abuse of
75 R.S.Q., c. P-40.1. 76 Bill 60, An Act to Amend the Consumer Protection Act and other Legislative Provisions, 2009, c. 51. 77 Kathryn Leger, “Little Guy Wins Big Under New Consumer Laws” The Gazette (July 2, 2010) online: Montreal Gazette <http://www.montrealgazette.com> .
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dominance section “if the appropriate circumstances should arise”.78
The “appropriate
circumstances” may just have arisen with the introduction of the Bureau’s new proposed
guidelines that signal a more aggressive approach to coordinated behaviour.
When AMPs were added to the abuse of dominance provisions, the Library of Parliament
report79 on the bill that amended the Act demonstrated that they were highly controversial, and
yet, one of the proposals put forward was that the Tribunal be authorized to impose AMPs of up
to $15 million for abuse of dominance by telecommunications service providers.80 In addition,
the Bureau’s new proposed guidelines expressly state that firms that are engaging in “similar”
anti-competitive practices can be considered jointly dominant for the purposes of the provisions.
Furthermore, new entrants on the wireless market, since the 2008 wireless spectrum auction, are
said to be facing new anti-competitive practices introduced by the dominant wireless firms.
Some of these new entrants have been focusing on expanding their market share in the lower end
of the market, for what has been termed the “bottom tier of the cellphone market”.81 In response,
dominant firms are introducing brands to compete in these same markets. As one new entrant has
claimed: “They’re coming in virtually trying to destroy the little guy”.82
78 Ménard, supra note 24 at 4.
The Act explicitly states
that such acts are anti-competitive practices, at paragraph 78(1)d), where it says that anti-
competitive acts include the “use of fighting brands introduced selectively on a temporary basis
79 Legislative Summary LS-552E, Bill C-41 : An Act to Amend the Competition Act (Ottawa : Library of Parliament Parliamentary Information and Research Service, 20 March 2007)(Revised 24 September 2007) [Report]. 80 Omar Wakil, The 2010 Annotated Competition Act (Toronto : Thomson Reuters, 2009) at 211. 81 Iain Marlow, “Wireless Upstart Slams Rogers over New Brand” The Globe and Mail (June 9, 2010) online: The Globe and Mail <http://www.theglobeandmail.com>. 82 Ibid.
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to discipline or eliminate a competitor”. Perhaps the frontiers of the abuse of dominance section
should now be tested with Canada’s wireless industry.
Conclusion
The difficulties inherent in making a judicially sound case against Canada’s wireless companies,
which is the likely reason why the Competition Bureau has not taken action, to date, suggest that
perhaps the abuse of dominance provisions may not be the appropriate forum for regulation of
coordinated behaviour in interdependent oligopolistic markets. There may be a more appropriate
basis for dealing with this type of consciously parallel behaviour.
Conscious parallelism is primarily a response to existing market conditions and the actions of
other firms in the market. The practices engaged in by firms in such a market are practices that
are widespread in that market and the Act regulates practices that are widespread in a market
under a number of the other reviewable practices provisions, in Part VIII. Therefore, the abuse of
dominance provisions should be reserved for coordinated behaviour that is more than mere
conscious parallelism and anti-competitive behaviour that results from conscious parallelism in
oligopolistic markets should fall under the purview other reviewable practice provisions.
Let us look at section 77 as an example. Although there is a certain degree of overlap between
section 77 reviewable practices - exclusive dealing, tied selling and market restriction - and
section 79 abuse of dominance, there are several reasons why section 77 would be a more
appropriate paradigm for dealing with those behaviours, when they are the result of consciously
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parallel behaviour between firms. Firstly, according to subsection 77(2), in order for the Tribunal
to make an order, even when exclusive dealing and/or tied selling are present, one of the other
conditions that must be met is that the practice be engaged in by a major supplier or be
widespread in a market. This could serve as the foundation for practices, such as conscious
parallelism, that result from the existing market conditions in an oligopolistic market. In contrast
with section 77, section 79 does not expressly apply where conduct is simply widespread in a
market.83
Secondly, it is very difficult to pinpoint where on the spectrum of coordinated
behaviour one would have to fall for the abuse of dominance provisions to apply, and yet, there
is no mention of a required level of collaboration under the section 77 reviewable practices
provision. Thirdly, section 79 does not use general multi-firm type phrasing. Rather, it ties the
concept of joint abuse to persons who together control a class of business. Yet, general multi-
firm type phrasing would more aptly describe the coordinated behaviour that constitutes
conscious parallelism.
Lastly, and perhaps more importantly, the penalties that can be imposed under the abuse of
dominance provisions can be much more serious than those under the reviewable practices
provisions. Specifically, the Tribunal may order that administrative monetary penalties (“AMP”)
be paid for violating the abuse of dominance provisions. Such AMPs are not one of the available
penalties under section 77. A firm in an oligopolistic market is reacting to the existing market
structure by engaging in consciously parallel behaviour. If that firm had a low market share, for
example, and did not think that they were dominant in any way, but could be considered with
83 Wakil, supra note 80 at 210.
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others to be jointly dominant, it could conceivably be punished for responding to other
competitors’ actions. The abuse of dominance provisions govern behaviour that is not inherently
anti-competitive. It only becomes so once the Tribunal concludes that it is,84
and the Tribunal, in
examining section 77 reviewable practices, is not precluded from also determining whether there
has been abuse of dominance. Given that the statutory penalties are more serious in the case of
abuse of dominance, the concept of “joint” dominance under section 79 has to mean something
more than mere conscious parallelism. For all these reasons, an alternative approach to conscious
parallelism may be in order.
The impact on a market from coordinated behaviour will be very similar, whether it is the result
of explicit collusion, tacit agreement or even conscious parallelism. However, conscious
parallelism, as discussed, is typically a response to existing market conditions. Is this similar
impact sufficient for conscious parallelism to be covered by the abuse of dominance provisions?
After all, as section 1 of the Act states, its purpose is essentially to maintain and encourage
competition so as to promote the efficiency and adaptability of the Canadian economy, ensure
that businesses have an equitable opportunity to participate in the Canadian economy and
provide consumers with competitive prices and choices. If the economic effect is the same,
perhaps the degree of active firm involvement should not be a factor. Yet, one should be
concerned about the consequences of a finding of abuse of dominance. They are potentially too
severe not to ask whether the conscious parallelism we have been discussing should be included
as a form of coordinated behaviour that is punishable under the abuse of dominance provisions.
84 Report, supra note 79 at 6.
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Until a more viable policy for dealing with coordinated behaviour, such as conscious parallelism
in cases of abuse of dominance, can be elaborated, the legal and business communities in Canada
will just have to remain consciously perplexed.