Agreements Between Competitors

• Author: John S. Tyhurst
• Pages: 263-356

263

CHAPTER 6

AGREEMENTS BETWEEN

COMPETITORS

A. INTRODUCTION

This chapter examines “horizontal” collusive and concerted practices —

i.e., agreements and other anti-competitive arra ngements bet ween com-

petitors (other than mergers and joint dominance). First, the policy con-

cerns surroundi ng these practices will be di scussed. Second, the history

of the Canadian provisions will be examined. Finally, their structure

and the legal tests will be described.

Agreements among competitors that reduce competition cover

a wide spectrum of behaviour, from clearly harmful to potentially

benef‌icial. This is true even for price f‌ixing. At the harmful end of

the spectrum are “naked” price agreements; for example, gasoline sta-

tion operators on opposite corners at a busy city intersection who, on

a Thursday night before a long weekend, secretly decide to increase

the price of gas f‌ive cents a litre for the following four days. Outraged

drivers, seeing the pr ices at t he two st ations r ise simultaneously Friday

morning, would have little diculty v iewing such clandestine conduct

as worthy of sanction if they were made aware of it.

On the other hand, price f‌ixing may be ancillary to potentially bene-

f‌icial behaviour. For example, lawyers in a partnership may agree on

their fees, including those they will charge for a simple property convey-

ance, which they post on the f‌irm’s website.1 Cooperation made possible

1 Such advertisi ng is, for example, permitted i n Ontario under s 4.2 of the Rules

of Professional Conduct adopte d by the Law Society of Onta rio pursuant to its

authority under t he Law Society Act, RSO 1990, c L.8.

CANA DIAN COMPETITION L AW AND POLICY264

by the partnership on such matters as mentoring junior lawyers, sharing

expertise and support sta, choosing areas of specialization, and sharing

of risk, provides benef‌its which must be weighed against the competitive

impact of its fee agreement. The partnership permits the operation of

an ecient law f‌irm with the resources needed to provide competent

services.2 It is unlikely to create concerns about limiting output, where

there are other f‌irms providing legal services in the area.3

The foregoing examples illustrate the need for competition law to

be capable of screening out harmful behaviour from benef‌icial hori-

zontal collusive conduct. The Competition Act does this in a number of

ways. The principal method is by employing two dierent regimes for

the review of anti-competitive agreements. On the one hand, the Act

creates criminal oences for conspiracies to f‌ix prices, share markets,

and limit production that are not ancillary to a broader agreement. Other

kinds of behaviour, such as agreements between f‌inancial institutions

and bid-rigging, are also subject to criminal prohibitions. On the other

hand, anti-competitive agreements that are not prohibited may still be

examined by way of a civil review before the Competition Tribunal, to

determine whether they are likely to prevent or lessen competition sub-

stantially and should be subject to a remedy.

This two-track approach to the review of anti-competitive agree-

ments, criminal and civil, is relatively recent — it came into eect in

2010. It was, however, decades in the making. It was born from the

realization th at the prev ious cr iminal law regime, which had remained

largely unchanged since 1889, was in dire need of reform and replace-

ment. The 2010 reforms greatly simplif‌ied and improved the law.

2 Presley L Warner & Mic hael J Trebilcock, “Re-Thinking Price Fi xing Law”

(1993) 38 McGill Law Journal 679 at n 21 [Warner & Trebilcock]:

[P]artnership agreement s among professionals almost a lways increase eco-

nomic welfare. Par tners may share admi nistrative and overhead cost s and

provide a broad range of s ervices to clients wh ich professionals working on

their own could not oer. The renow ned American judge Oliver Wendell

Holmes once remarke d that if antitrust l aws were interpreted so as to pro-

hibit partne rship agreements, thi s “would make eternal the bellum omniu m

contra omnes [the war of all against al l] and disintegrate societ y so far as it

could into indiv idual atoms.”

3 Robert Bork, The Antit rust Paradox (New York: Basic Books, 1978) at 265.

Agreements B etween Competitors265

B. THE POLICY CONCER NS WITH CONCERTED

PRACTICES BETWEEN COMPETITORS

1) Hard Core Cartels

In 1998, the Organization for Economic Cooperation and Development

(OECD), an international organization of thirty-six of the world’s lead-

ing economies, passed a recommendation that “[m]ember countries

should ensure that their competition law s eectively halt and deter hard

core cartels.” These were def‌ined as agreements or arrangements “by

competitors to f‌ix prices, make rigged bids (collusive tenders), estab-

lish output restrictions or quotas, or share or divide markets.”4 The

Preamble to the recommendation stated:

[H]ard core cartels are the most egregious violations of competition

law and . . . injure consumers in many countr ies by raising prices and

restricti ng supply, thus m aking goods and ser vices completely unavail-

able to some purchasers and unnecessarily expen sive for other s.

The justif‌ication for an outright ban on price f‌ixing and market

sharing agreement s rests on the view “that they are so clearly anti-com-

petitive in nature, so devoid of any purpose except the stif‌ling of com-

petition that they may be conclusively be presu med to be illegal without

further enquir y once the Crow n has established that such restrai nt has

4 OECD, Recommenda tion of the Council Concerning Eective Action Against H ard

Core Carte ls (25 March 1998), online: ww w.oecd.org /daf/competition /2350130.pdf

[OECD Recommendations Against Hard Core Cartels].

Figure 6.1. The ser vice station: the public’s windo w on price competition