Abuse of Dominance

• Author: John S. Tyhurst
• Pages: 357-401

357

C H A P T E R 7

ABUSE OF DOMINA NCE

A. INTRODUCTION: THE POLICY APPROACH

TO DOMINANT FIR M BEHAVIOUR

Possession of monopoly or market power1 by a dominant f‌irm can pro-

duce allocative, productive and dynamic ineciency, result in social

welfare losses and impos e a transfer of income from consumers to

producers.2 Dominant f‌irms may al so use their power to exclude com-

petitors or increase bar riers to entry through such tactics as signi ng

customers to long-term exclusive contracts, selective price cutting to

deter entry, intimidating and acqui ring emerging competitors, engaging

in sham litigation, or refusals to supply. These practices often carry a

sense of unfair ness in addition to their impact s on eciency and con-

sumer welfare.

While such concerns provide a basi s for competition law to address

the behaviour of dominant f‌ir ms, there are a number of factors that

support the need for caution in a policy approach that would see big-

ness per se as a basis for sanctioning or break ing up dominant entities.

These include:

1 See the dis cussion of market def‌inition and m arket power in Chapter 4.

2 See Chapter 3.

CANA DIAN COMPETI TION LAW AND POLICY358

Figure 7.1. The match facto ry at the foot of the tall smoke st ack, Hull, after 18673

• Large f‌irms may have obtained or maintained their position due to

economies of scale or scope, or from eciencies derived from vertica l

integration.4 Breaking them up, or limiting their competitive actions,

may increase cost s and reduce social welfare.

• Attacking f‌irms that have become indust ry leaders through “superior

skill, foresight and industr y” may have an adverse eect on their

incentives to expand by legitimate competitive means; in short, it

may dissuade competition, the very thing competition policy str ives

to promote.5

• Large f‌irm size m ay be essential to the ability to compete on an inter-

nationa l level.6

• The returns derived from a monopoly position may provide the incen-

tive that fuels critical expenditure s on innovation, a key driver of

competition. Economist Joseph Schumpeter opined that monopoly

returns would unleash the forces of “creative destruction,” resulting

3 The Encyclopedia of French Cultural Herit age in North America, online:

www.ameriquefrancaise.org/en/article-719/Chaudi%C3%A8re_Falls_in_the_

Outaouais _Region.htm l.

4 Bruce Dunlop, Mich ael Trebilcock & David McQueen, Canadian Compet ition

Policy: A Legal and Economic Analysis (Toronto: Canada L aw Book, 1987) at

156–58; Lawre nce A Skeoch & Bruce C McDonald, Dyna mic Change and Account-

ability in a Canadia n Market Economy (Ottawa: Consumer and Cor porate Aairs,

1976) at 148 [Skeoch-McDonald Rep ort].

5 Maurice E Stucke, “Should t he Government Prosecute Monopolie s?” [200 9]

2009 University of Illinois La w Review 497 at 517 [Stucke], citing the US juri spru-

dence, including Unite d States v Aluminum Co of America, 148 F2d 416 (2d Cir

1945) at 430; Verizon Communications Inc v Law Oces of Curt is V Trinko, LLP,

540 US 398 (2004) at 406 [Ver izo n].

6 Skeoch-McDonald Rep ort, above note 4 at 149.

Abuse of Domina nce 3 59

in novel products, better service, or cheaper production method s.7

Schumpeter’s hypothesis ha s been widely cited and even endorsed

by the US Supreme Court in its antitru st jurisprudence.8 At the same

time, there remain s a solid theoretical and empirical foundation for

believing that competition is a key driver of innovation in many

circumst ances.9

Given such factors, the abuse of dominance provisions in t he Com-

petition Act may sanction monopolistic practices that are predatory,

exclusionary, or disciplinar y, but do not provide relief against the mere

possession of a dominant market position.10 If a f‌irm gains, or main-

tains, a dominant position by legitimate competitive mean s such as

better products, superior serv ices, innovation, lower costs, or ecient

practices, there is no basi s to intervene.11 Successful competitive behav-

iour is what competition law is intended to encourage; “monopoly can

sometime s result f rom competit ion.”12

Once a f‌irm gains a substantial share of the market, however, mar-

ket power may give it the economic clout and leverage that can be used

against competitors by employing mean s that do not involve the mere

exercise of superior competitive performance. Obtaining and mai n-

taining a domin ant position by anti-competitive means rat her than

7 Joseph Schumpeter, Capitalism, Socialism, and Democracy (New York: Routledge,

2003) at ch VII.

8 Verizo n, above note 5 at 4 07:

The mere posses sion of monopoly power, and the concomitant charg ing of

monopoly prices, is not on ly not unlawful; it is an imp ortant element of the

free-market sy stem. The opportunity to char ge monopoly prices — at least for

a short period — is what attract s “business acumen” in the f‌ir st place; it indu-

ces risk t aking that produces in novation and economic growth. To safegu ard

the incentive to i nnovate, the possession of monopoly p ower will not be found

unlawfu l unless it is accompanied by a n element of anticompetitive conduct.

9 See, e.g., Jonathan B Ba ker, “Beyond Schumpeter vs. Arrow: How Ant itrust

Fosters Innovation” (2007) 74 Antitru st Law Journal 575; Stucke, above note 5

at509–13.

10 Competition Act, RSC 1985, c C-34, ss 78 & 79 [Competition Act or Act]; Canada

(Commissioner of Competition) v Vancouver Airport Authority, [2019] CCTD No6

at para 625 [VAA]: “As the Tribunal has pre viously observed, ‘[. . .] section 79

is not intended to condem n a f‌irm merely for having mark et power. Instead, it

is directed at e nsuring that domin ant f‌irms compete with othe r f‌irms on merit

and not through abus ing their market power’ (Canada (Director of Invest igation

and Research) v Tele-Direct (Publications) Inc et al, [1997] CCTD No 8, 73 CPR (3d)

1 (Comp Trib) at 179).”

11 Stephen Marti n, Industrial Economics (New York: Macmillan, 1988) at 86.

12 Ibid.