Should Canada Overhaul the SLPC Test For Mergers?

Abstract

Governments throughout the world have been questioning whether their competition laws are sufficiently robust to police potentially anti-competitive conduct, including mergers. Of particular concern is whether the tools developed for addressing potentially anti-competitive mergers in traditional markets may fail in digital settings and, as a result, need to be overhauled. As more industries enhance their product offerings with digital innovations, these concerns may eventually cover a greater share of the economy from that which is currently held by so-called ‘Big Tech' firms.

Competition laws in respect of mergers have tended to focus on price effects. In digital settings, adverse non-price effects, such as lower product quality and less innovation, may be the greater concern, particularly because digital products and services may have a "zero price" for consumers in that they are "free". In addition, the link between share and concentration measures and competitive effects may be more tenuous in digital markets, particularly in cases involving incumbent firms acquiring nascent (or potential future) competitors with small, or even no, current share in relevant markets.

In response to these concerns, calls have been made to strengthen competition laws to better protect consumers and the competitive process. In Canada, the Competition Bureau ("Bureau") is recommending numerous changes to the competitive effects evaluation of mergers, including adopting a US-style structural presumption, lowering the ‘substantiality' threshold, and lessening or reversing the evidentiary burden to establish that a merger is likely to substantially lessen or prevent competition ("SLPC").

A key motivation for the Bureau's proposals is reducing the total resources it devotes under the current system to establishing and quantifying anti-competitive harm in the mergers context. With respect to quantification of harm, the Bureau recommends that the efficiencies defence currently included in section 96 of the Act-and the corresponding trade-off analysis that this defence entails-be repealed and that efficiencies instead be considered as one of several factors under section 93 when the Competition Tribunal ("Tribunal") evaluates whether a merger is likely to result in an SLPC. Should the section 96 trade-off analysis be repealed, the requirement for the Bureau to quantify anti-competitive effects will no longer exist. Our commentary focuses on the proposals to reform the standards used to establish an SLPC. For the purposes of this commentary, we assume that the Bureau's proposals with respect to the section 96 trade-off are adopted.