Market Definition and Market Power

• Author: John S. Tyhurst
• Pages: 140-182

140

CHAPTER 4

MARKET DEFINITION

AND MARKET POWER

A. INTRODUCTION

Market def‌inition is usually a threshold, and sometimes a decisive,

issue in competition law cases. In the Canada (Director of Investigation

and Research) v Southam Inc merger case, for example, the central issue

before the Supreme Court of Canada was whether the acquired com-

munity newspapers were in the same “relevant market” as two daily

newspapers, the Vancouver Sun and Vancouver Province.1 Southam

owned the two daily news papers. In 1989, it acquired thirteen commun-

ity newspapers and cert ain other publishing concerns. In 1990, an appli-

cation was f‌iled under section 92 of the Competition Act by the Director

(now Commissioner of Competition) seeking to have Southam divest

the largest community paper s in the Greater Vancouver area, the North

Shore News and Vancouver Courier, as well as the Real Estate Weekly,

on the basis that those acquisitions were “likely to prevent or lessen

competition substantially” i n the retail print advertising and rea l estate

print advertising markets in the Lower Mainland area of Vancouver.

The Competition Tribunal found that the community newspapers

were not in the same market as the da ilies, on the basis that they ser ved

dierent print advertising markets. It held that the dailies appealed

to large national advertisers (like banks and automobile companies)

1 Canada (Director of Investigation a nd Research) v Southam Inc, [1997] 1 SCR 748

[Southam SCC], overturnin g [1995] 3 FC 557 (CA) [Southam FCA].

Market Def‌init ion and Market Power141

seeking coverage throughout a metropolitan area, while t he community

papers appealed to local advertisers (such as smaller retailers), whose

customers live within a certain district.2 The acquisition by Southam

of the two community newspapers was permitted because they were

found not to compete in the same market. That f‌inding was ultimately

upheld by the Supreme Court. The Supreme Court overturned the Fed-

eral Court of Appeal, f‌inding that the Tribunal’s determination on the

relevant market was reasonable and should have been shown deference

by the appeal court.3

A price f‌ixing ca se which turned on market def‌inition was R v Clarke

Transport Inc.An agreement to f‌ix prices and allocate customers was

proven. The trial judge, Moldaver J (as he then was), found that “I am

satisf‌ied beyond any reasonable doubt that the f‌ive corporate accused

conspired amongst themselves and with others in respect of prices for

the delivery of freight by rail from Toronto to various destinations in

Western Canada.”4 However, prior to amendments to the Actin 2009,

the Crown had to prove that the conspiracy resulted in an “undue less-

ening of competition.” This required that the co-conspirators possess

some market power in a relevant market. Justice Moldaver was not satis-

f‌ied that the relevant market was restricted to freight transportation by

railway “pool” car, as the Crown alleged. He concluded that “pool car

operators, truckers and intermodal operators were equally capable of

moving and indeed did move the identical kinds of freight on behalf

of shipper/customers from Ontario to points west.”5 He was unable to

conclude that the pool car conspirators had m arket power in the broader

market for freight transportation. They were acquitted.

An example of market def‌inition playing a decisive role in a mon-

opolization case under the American Sherman Act was the 1947 Du

Pontcase.6 Du Pont produced almost 75 percent of the cellophane sold

in the United States at that time, but cellophane constituted less than

20percent of the sales of all “f‌lexible packaging material” (including

wax paper, aluminum foil, etc.). While the US Supreme Court found that

DuPont had a monopoly in cellophane by virt ue of its patent protection

and licensing agreements, it noted that “[t]he court below held that

the ‘great sensitivity of customers in the f‌lexible packaging markets to

2 Canada (Director of Investigatio n and Research) v Southam Inc (1992), 43 CPR (3d)

161 (CCT) [Southam CCT].

3 Southam SCC, above note 1.

4 R v Clarke Transport Canada Inc (1995), 130 DLR (4th) 500 (Ont Gen Div) at

para 45.

5 Ibid at para 133.

6 United States v EI du Pont de Nemours and Co, 351 US 377 (1947).

CANA DIAN COMPETITION LAW AND POLICY142

price or quality changes’ prevented du Pont from possessing monopoly

control over price.”7 It held (consistent with the lower court’s determin-

ation): “du Pont should not be found to monopolize cellophane when

that product has the competition and interchangeability with other

wrappings that th is record shows.”8 While the result has been crit icized

because the Court fai led to take into account that Du Pont’s prices were

already elevated by, and more price sensitive due to, its existing cello-

phane monopoly (the so-called cellophane fallacy di scussed below), the

case illustr ates again how market def‌inition can b e a decisive threshold

issue in competition law.

B. MARKET DEFINITION AS A STEP IN

ASSESSING MARKET POWER

1) The Meaning and Relevance of “Market Power”

Market def‌inition was required in the three cases discussed above

because the applicable legal test s involved a determination of the impact

of the conduct in question on competition. Market def‌inition provides a

framework within which to assess competitive eects. The Competition

Act requires that the Competition Tribunal assess whether or not the

party’s or parties’ conduct has had, or would have, the following eect:

• “substantial prevention or lessening of competition” (for mergers, ver-

tical practices, abuse of domin ance, anti-competitive agreements)9 and

• “adverse eect on competition in a market” (for refusal to supply,

resale price maintenance).10

These tests have been held to require some degree of impact on

market power. “Market power” was def‌ined by the Supreme Court in

Ter vita a s follows:

Market power is the ability to “prof‌itably inf‌luence price, qual-

ity, variety, service, advertising, innovation or other dimensions of

competition.” . . . Or, in other words, market power is “the ability to

maintai n prices above the competitive level for a considerable period

of time without such action being unprof‌itable” . . . where “price” is

7 Ibid at 400.

8 Ibid at 404.

9 Competition Act, RSC 1985, c C-34, ss 77, 79, and 82.

10Ibid, ss 75 & 76.