Canada is grappling with a significant economic issue: market concentration. A select few corporations dominate key sectors, leading to reduced competition, rising prices and limited purchase options for consumers.
Canada’s grocery industry is a prime example. A recent report from the Competition Bureau found that lack of competition in the grocery sector is resulting in higher food prices.
The sector in question is dominated by five major players — Loblaws, Metro, Empire (the owner of Sobeys), Walmart and Costco. These five companies account for over three-quarters of all food sales in Canada.
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The report recommended four policies to encourage competition. These include establishing a grocery innovation strategy, encouraging new independent and international players, introducing legislation for consistent unit pricing and limiting property controls.
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While independent grocery chains could be a viable alternative, they don’t take up as much of the market as they do in other countries. The Canadian grocery market is heavily concentrated and limits the ability of independent chains to compete by forcing them to purchase products from larger chains.
Canada’s economy has historically been marked by notable monopolies, thanks to its vast geographical expanse and sparse population.
Entities like the Hudson’s Bay Company and Canadian Pacific Railway played significant roles in the country’s development. This largely happened out of concern that domestic companies would be overwhelmed by American competitors unless they grew significantly.
Recent trends suggest this phenomenon is not only persisting, but intensifying. While Sobeys, Loblaws, Metro, Costco and Walmart dominate over 60 per cent of the grocery sector, Bell, Rogers and Telus command about 89 per cent of the wireless telecommunications market.
The concentration of power extends beyond these sectors. The banking industry in Canada is dominated by six banks — the Royal Bank of Canada, TD Bank, Scotiabank, the Bank of Montreal, CIBC and National Bank, which collectively control about 93 per cent of the industry.
And the Canadian telecommunications industry is still reeling from the recent merger between two of the industry’s giants, Rogers Communications and Shaw Communications. The implications of this deal are far-reaching.
The Rogers-Shaw merger’s final approval came with 21 enforceable conditions to which Rogers and Quebecor’s Videotron must adhere, while Shaw had to sell its Freedom Mobile business to Videotron.
If Rogers breaches its conditions, it must pay up to $1 billion in damages. Videotron could be subject to $200 million in penalties if it fails to meet its commitments.
Despite these conditions, some remain skeptical. Critics have argued the merger may lead to higher prices for consumers and less innovation.
Carleton University political economy professor Dwayne Winseck warned it could lead to a “tight oligopoly on steroids.”
On the flip side, other experts believe the merger could benefit consumers by accelerating the rollout of 5G networks and improving infrastructure and services, particularly in rural areas.
However, these benefits could be offset by the potential for higher prices and less competition.
The merger has sparked controversy because it exploited weaknesses in Canada’s Competition Act to push the deal through.
The Competition Act has been criticized for failing to prevent acquisitions that allow large firms to eliminate competitive threats and solidify their dominance.
As Canada’s competition watchdog, the Competition Bureau can review mergers to determine if they will be harmful to competitiveness. But since its introduction in 1986, it has only challenged 18 mergers and has never won a challenge on final judgment.
The law also has a high bar for intervention in a merger, often favouring negotiated agreements that include concessions or remedies to address some of concerns the deal, but not necessarily all.
The competition commissioner, Matthew Boswell, believes the existing competition laws are inadequate. Boswell has been hamstrung by legal loopholes and unable to prevent anti-competitive mergers, like the Rogers-Shaw deal, from happening.
Along with rising consumer prices, limited purchase options and intensifying competition, the growth of monopolies in Canada has led to a host of other issues.
Monopolies have the potential to stifle innovation, a key driver of economic growth. Productivity growth, crucial for improving living standards, is also under threat, as monopolies can create an environment less conducive to efficiency and progress.
As Canada embarks on its post-pandemic economic recovery, policymakers must ensure economic resilience and inclusiveness while preventing existing monopoly issues from worsening.
At the same time, there is an opportunity to reshape the economic landscape to encourage competition and foster innovation, benefiting everyone.
This journey toward a more prosperous future will require rigorous scrutiny of developments like the proposed Rogers-Shaw merger and the wisdom to navigate the interplay of monopolies, competition and the broader economy.
– Garros Gong is a Ph.D. Student in Management Science (OR) at the University of Waterloo and an Investment Strategist at Scotiabank. This story first appeared in the Conversation, by Reuters.
