Forum Conveniens Presents: Summer School
Luka Knezevic, class of 2024
In this series, U of T law students who held university-affiliated summer positions share a bit about their experience and engage with the material they worked with over the summer.
Student: Luka Knezevic, class of 2024
Position: Competition Law Research Assistant for Professor Anthony Niblett
My research for Professor Niblett concentrated on antitrust/competition law policies, with a focus on mergers. Initially, this meant looking at the Competition Act, 1985 (“the Act”) and the Merger Enforcement Guidelines to determine what the Competition Bureau (the Bureau) looks at when deciding if a merger will have anti-competitive effects. Anti-competitive effects are defined as small but significant non-transitory increases in price (SSNIP). SSNIPs obviously include increases in price, but they can also include degradations of quality. During the merger review process, the Bureau essentially tries predicting if the merged entity will be able to increase prices without losing a large chunk of business to its competitors. If the Bureau determines such a scenario is likely, then they can order a full block of the merger (i.e., prevent the acquisition) or order the acquirer to take steps to remedy the merger’s anti-competitive impact. In practice, the latter solution usually involves the Bureau entering into a consent agreement with the company that requires some divestiture of assets to an approved buyer.
I reviewed historical mergers in Canada and abroad, as well as proposed mergers. For instance, I researched the potential anti-competitive impact of the proposed merger between Rogers Communications Inc. (Rogers) and Shaw Communications Inc. (Shaw). First announced in March of 2021, the acquisition involves Rogers, Canada’s largest telecommunications (telecom) company, purchasing Shaw, the country’s fourth-largest provider of telecom services. Shaw tends to offer lower-price telephone plans—the Competition Bureau even noted that its presence in the market has driven down prices and increased innovation. It is no surprise then that the deal is expected to increase consumer-facing prices through removing a low-cost competitor from the market. That is why the Competition Bureau sought a full block of the merger. Rogers pushed back by arguing that the acquisition would allow them to make more investments in rural and Indigenous communities. Rogers also argued that by divesting themselves of Shaw’s “Freedom” brand, they would preserve competition in the wireless market. These conflicting assessments and hypotheticals are what make competition law both fascinating and complicated.
It has been interesting to see the proposed changes to merger law in Canada. One proposal from the Bureau would see Canada adopt stricter measures to prevent anti-competitive acquisitions. This would be done in part by removing the efficiencies exemption under section 96 of the Act, which essentially provides a full defense to anti-competitive mergers presuming the efficiency achieved by the merger is significant enough to overcome any anti-competitive effects. The idea here is that consumers will benefit if the merger generates enough efficiency because the enterprise will more cost-effectively manufacture its products, resulting (hopefully) in lower prices. It has also been interesting to contrast the Canadian approach with approaches taken in the United States (U.S.) and the European Union. I was surprised to learn that Canada arguably has much more tolerance for anti-competitive behaviour. For instance, there are no structural presumptions in Canada; even if a company was attempting to acquire a 100 per cent market share, the Bureau would still have to demonstrate how exactly this merger would harm competition in the market. Canada is also unique in offering the efficiencies exemption as a justification for anti-competitive mergers. The historical explanation for this greater tolerance towards large market concentrations is Canada’s low population density. However, given Canada’s significant population growth and transition to a service economy in the past few decades, I would say that this argument has lost some significance.
Antitrust and competition law is certainly an evolving area that will change dramatically in the years to come, given the concentration of market power in a few technology giants. Most recently, I looked at the literature surrounding two-sided markets following Ohio v American Express. [1] In this case, the Supreme Court of the United States (SCOTUS) concluded that American Express’ anti-steering provisions, which prevented merchants from guiding customers to lower-cost credit cards, were totally legal. Credit card transactions are made of two sides: the cardholder and the merchant. SCOTUS held that the plaintiffs failed to demonstrate harm on both sides of the market, which they determined to be a necessary component for violating U.S. antitrust law. Some speculate that this new requirement of harm on both sides of the market will make antitrust enforcement more challenging, particularly in cases involving technology giants such as Amazon. If harm on both sides is required, Amazon and others would potentially be free to put cost pressures on their third-party merchandisers and even compete directly with them, so long as customers receive lower prices. This may not seem so bad from the point of view of consumers, but this may present a serious problem for merchandisers and small businesses since their profit margins can be further reduced. As it currently stands, Amazon controls more than a third of the U.S. online retail space, so these merchandisers have limited alternatives.
I recommend everyone learn a bit about antitrust/competition law because it really helps explain some of the issues that can arise in industries with little to no competition. Even for someone like myself with a business degree, it was illuminating to read about the contemporary issues and proposed solutions in antitrust and competition law. As Canadians, I think we are unfortunately all-too-familiar with the high costs and poor quality that can result when competition is not preserved.
[1] Ohio v American Express, 138 S Ct 2274 (2018).