The Competition Act and the Competition Bureau should be reformed to make consumer welfare and the consumer interest integral to their purpose and mandate.
Governments have good reason to take consumer protection seriously, and not just because of the massive contribution consumer spending makes to the economy, nor the fact that consumers are also voters. Consumers today are key drivers and sources of innovation. The demanding and well-informed consumer helps to drive competition and forces firms to innovate. When consumers have confidence in the marketplace and the rules governing it, they are more likely to accept innovative new products and services, which are the essence of how advanced industrial economies can ensure sustainable job and income growth.
Thus, it is critically important for governments to have effective consumer protection regimes in place if they are to ensure that the demand side of the economy is functioning in a way that promotes growth and innovation. Competition policy and law, when appropriately designed, not only can reinforce the protections offered to consumers in the marketplace but also can empower consumers to be more effective drivers of competition and innovation in Canadian markets.
So it is time to re-examine our approach to competition policy and its associated regulatory regimes. In fact, a series of targeted reforms to Canada’s competition policy could produce significant benefits for consumers, for competition and innovation, and for the economy as a whole.
In 1986 the decision was made to apply a new “aggregate efficiency and total surplus” approach to the design and enforcement of the Competition Act. This approach required competition decision-makers to apply a comparatively narrow and theoretical interpretation of economic efficiency to enforcement and compliance issues and other competition matters.
The focus on this new principle provided little guidance to decision-makers on how the interests and welfare of consumers and small businesses should be considered when investigating mergers, abuse of dominance and other competition matters. The underlying premise was that any competition decision that promoted competition, increased the number of suppliers or improved the overall efficiency of the national economy would more or less automatically advance consumer welfare. At that time, the expectation of many Canadian economists, officials and businesspeople was that this approach would be the wave of the future and would be adopted by many other jurisdictions in the years ahead.
But this wave of the future never materialized, and Canada is now an outlier internationally in taking this approach to competition policy. There are expanding theoretical reasons and ample empirical evidence why this approach is not relevant to a large and increasing number of goods and especially services markets in the modern knowledge-based economy. For example, focusing on economic efficiency and significant price increases is not relevant and helpful to competition investigations of digital markets, which are dominated by so-called free goods (also called zero-price goods). In those cases, the costs to consumers and citizens encompass information and attention span costs, losses of personal privacy and risks of identity theft, and potential violations of personal and public security and political and human rights.
In fact, many countries have discovered that explicitly integrating consumer welfare considerations into their competition law regimes has been essential to obtaining effective outcomes. Further, many have also integrated their consumer protection legislative and enforcement agencies with their competition regimes, as they have found that such integration can generate significant benefits and simultaneously enhance consumer welfare, competition and innovation in the overall economy. These countries and their agencies include the Federal Trade Commission in the United States, the Australian Competition and Consumer Commission, the Competition and Markets Authority of the United Kingdom and, most recently, the Competition and Consumer Commission of Singapore.
Taking a leaf from the experience of other countries, we propose a set of initiatives that would revise the Competition Act in order to make consumer welfare and the consumer interest integral to the Act’s purpose and provisions, bringing it into line with many of our trading partners. To better reflect the change in focus, it should be renamed the “Competition and Consumer Act.”
Such a reform would better ensure that the claims of proponents for mergers and other competition issues generate tangible and measurable benefits for consumers: lower prices, higher-quality and more innovative products, and greater product variety and choice.
Further, in order for the changes to the Competition Act to be effective, we propose that, as in other countries, the Competition Bureau’s mandate be expanded to explicitly incorporate consumer protection functions. This is not a radical proposition as the Competition Act already has elements concerned with fair business practices connected with fraud and misleading advertising and other unfair business practices in the marketplace. The Competition Bureau is also responsible for enforcing a number of other consumer protection statutes.
There is considerable scope for the bureau to take on a more effective consumer protection function, particularly in dealing with the marketing and contracting activities of federally regulated industries.
The federal government does not have jurisdiction over consumer protection issues involving the terms and conditions of the sale of goods and services; these are the responsibility of provincial governments. Thus, it would be difficult for the bureau to take on an integrated consumer protection function, as occurs in agencies of countries that exercise those powers nationally. Nevertheless, there is considerable scope for the bureau to take on a more effective consumer protection function, particularly in dealing with the marketing and contracting activities of federally regulated industries such as financial services, telecommunications and transportation. These industries are becoming increasingly important players in the consumer marketplace, are being radically transformed by new technology, are consuming a growing part of consumers’ household budgets and are increasingly central to the ability of individuals to function effectively in the broader marketplace.
Marketing and contracting are important issues for consumer protection today because research has made it clear that consumers are not as capable of protecting their own interests as we once believed, especially in the kinds of dynamic, information-intense environments that characterize the modern consumer service and product markets that are regulated by the federal government. Behavioural economics has taught us that, faced with complex and time-constrained decisions, consumers often make decisions that are contrary to their interests. Consumers are very vulnerable to manipulation by sophisticated marketers and sellers when they make their purchasing decisions and are often locked into poor decisions by long-term contracts that are one-sided and unfair, with poor access to redress.
In order to tackle these new threats to consumers, we propose that reform of the Competition Act be supplemented by these measures:
- A new federal consumer protection statute, administered by the Competition Bureau. It would deal with, for example, major cross-border enforcement matters and consumer rights issues in federally regulated industries, especially transparent and nonmanipulative marketing and fair contracting and redress.
- Changing the scope and responsibilities of the Competition Bureau itself, using other integrated competition and consumer agencies elsewhere in the industrialized world as models, to fully reflect its new responsibilities to promote and protect the interests of consumers.
- Establishing within the new bureau a behavioural consumer policy unit, which would become Canada’s centre of excellence for applying behavioural economics’ insights to competition, consumer protection and related marketplace policies and laws.
Academic research and empirical evidence from many other jurisdictions suggest there are many benefits to integrating competition and consumer protection policies, laws and enforcement within the same government agency. This integration can increase the effectiveness of both sets of laws and enhance public understanding and support for the Competition Bureau’s mandate, functions and decisions.
If we want companies to be more competitive and innovative, we need to harness the market power of consumers to drive competition and innovation. We can best do that by putting the interests of consumers at the centre of our competition policy regime.
This article is part of the Recalibrating Canada’s Consumer Rights Regime special feature.
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