Abuse of Dominance

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

357

CHAPTER 7

ABUSE OF DOMINANCE

A. INTRODUCTION: THE POLICY APPROACH

TO DOMINANT FIRM 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 impose a transfer of income from consumers to

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

petitors or increase barriers to entry through such tactics as signing

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 unfairness in addition to their impacts on eciency and con-

sumer welfare.

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

the behaviour of dominant f‌irms, 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 breaking 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 COMPETITION 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 costs and reduce social welfare.

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

skill, foresight and industry” 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 strives

to promote.5

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

national level.6

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

tive that fuels critical expenditures 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.html.

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 [Verizon].

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

Abuse of Domina nce359

in novel products, better service, or cheaper production methods.7

Schumpeter’s hypothesis has been widely cited and even endorsed

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

time, there remains a solid theoretical and empirical foundation for

believing that competition is a key driver of innovation in many

circumstances.9

Given such factors, the abuse of dominance provisions in the 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 means such as

better products, superior services, 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

sometimes result from competition.”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 means that do not involve the mere

exercise of superior competitive performance. Obtaining and main-

taining a dominant position by anti-competitive means rather than

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

2003) at ch VII.

8 Verizon, 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.

10Competition 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).”

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

12Ibid.