Pricing Practices: Predatory Pricing, Price Maintenance, and Price Discrimination

• Author: John S. Tyhurst
• Pages: 449-495

449

CHAPTER 9

PRICING PRACTICES:

PREDATORY PRICING,

PRICE MAINTENANCE,

AND PRICE

DISCRIMINATION

Predatory pricing is rare and very dicult to identify in practice

because low prices are what competition is al l about.

— House of Commons, Standing Committee on Indust ry,

Interim Report o n the Competition Act

(Ottawa: House of Commons, 2000), ch 3

A. INTRODUCTION

By 2009, the criminal laws against predatory pricing, price discrimina-

tion, and price maintena nce had not been enforced for some time. These

practices were regarded by many economists as often benign or even

benef‌icial. The Competition Bureau had issued en forcement guidelines

for price discrimination and predatory pricing which reduced their

scope.1 Criminal law enforcement was recognized as an ineective

method for addressing such conduct and had created concerns about

1 Canada, Comp etition Bureau, Price Discrimin ation Enforcement Guidelines

(Ottawa: Consumer a nd Corporate Aairs Can ada, 1992); Canada, Comp etition

Bureau, Predator y Pricing Enforcement Guidelines (Ottawa: Consu mer and Cor-

porate Aair s Canada, 1992) [Predatory Pricing Enforcement Guidelines 1 992].

CANA DIAN COMPETITION LAW AND POLICY450

the risk of a “chill” over pro-competitive pricing.2 To make matters

worse, the law carried with it the potential for statutory civil damage

actions,3 making an often costly and time-consuming legal risk assess-

ment necessary for some competitive business conduct.

That year, the criminal provisions were repealed. The law against

price maintenance was retained, but revised as a civilly reviewable

practice. Predatory pricing and price discrimination were left to be

addressed under the abuse of dominance provision. All of these prac-

tices are now subject to civil enforcement before the Competition Tri-

bunal. These changes ref‌lect the increased focus in the legislation on

the protection of competition and eciency as the primary goals of

Canadian competition law.

The treatment of these practices i n this separate chapter has more to

do with their common historical evolution than their economic charac-

ter. Under the current law, predatory pricing and price discrimination

are practices which may fall within abuse of dominance and the frame-

work set out in Chapter 7. Resale price maintenance, now dealt with

separately as a civilly reviewable practice, shares many characteristics

with the vertica l restraints discusse d in Chapter 8. Given the foregoing,

what follows draws on the discus sion in earlier chapters and focuses on

the distinct or unique elements of this conduct.

B. HISTORY AND BACKGROUND

1) Price Discrimination and Predatory Pricing

a) Origins

As noted in Chapter 3,4 the criminal price discrimination and preda-

tory pricing provisions were both part of a legislative reaction to the

eects of the Great Depression of the early 1930s. In 1934, Parliament

appointed a Special Committee of members of the House “to inquire

into and investigate the causes of the large spread between the prices

received for commodities by the producer thereof, and the price paid by

2 See, e.g., Canadia n Bar Association, Compet ition Law Section, “Submis sion

to the Competition Polic y Review Panel” (Januar y 2008): “It is harmful to the

competitivenes s of the Canadian economy to cont inue to have criminal prov i-

sions prohibitin g such conduct.” See also Lawson A Hunter & Susa n M Hutton,

“Is the Price R ight?: Comments on the Predatory Pricing Enforceme nt Guidelines

and Price Discr imination Enforcement Guidelines of the Bure au of Competition

Policy” (1993) 38 McGill Law Journal 830 at 847 [Hunter & Hutton].

3 Section 36 of the Competition Act,RSC 1985, c C-34 [Competition Act or Act].

4 See Chapter 3, Sect ion C(3)(a).

Pricing P ractices451

the consumers therefor.”5 Its mandate was also to examine “the eect

of mass buying by department and chain store organizations upon the

regular retail t rade of the country, as well as upon the business of manu-

facturers and producers,”6 ref‌lecting concerns with the plight of small

businesses. The Committee was unable to complete its work by the

deadline, and its mandate was rolled into that of a Royal Commission

on Price Spreads. The Commissioners were member s of Parliament, and

thus their recommendations ref‌lected a political and populist focus.

The Report of the Royal Commission on Price Spreads was released in

1935. It recommended that a Federal Trade and Industry Commission

be appointed with the power to prohibit certain “unfair competitive

practices,” including “discriminator y discounts, rebates and allowances,

territorial pr ice discrimination and predator y price-cutting.”7While the

Report recogni zed that many of its concerns with indiv idual businesses’

competitive survival were the product of the forces at play during the

Great Depression, the authors held fast to the need for remedies for

the future.8 The House of Commons debate on the draft legislation

f‌lowing from these recommendations has been described as showing

“confusion . . . as to what were its objectives.” 9 Some legislators viewed

the legislation as promoting competition, others as a way of protecting

both labour and small business interests.10 The provisions themselves,

enacted as section 498A of the Criminal Code,ref‌lected these diering

objectives, creating, inter alia, criminal prohibitions (a) against dis-

criminating between competitors of a purchaser, and (b) against low

5 Figu re 9.1, Canada, Repor t of the Royal Commission on Price Spreads (Ottawa:

King’s Pri nter, 1935) at xxvi.

6 Ibid.

7 Ibid at xxiv–xxv.

8 Ibid at 8:

It is not enough to say, as many contend, t hat these problems are the r esult

of depression and w ill vanish with the de pression. It may be true th at when

recovery is ach ieved, competition will become le ss predatory, discrim ination

less general, a nd exploitation less obvious. But it i s equally true that, wh ile

unfair compet ition and unequal bargai ning are intensif‌ied by depre ssion,

they will not b e absent in prosperity, especi ally in a prosperity ch aracterized

by the increa sing substitution of imperfe ct for free competition.

9 See Pau l Gorecki & William T Sta nbury, The Objectives of Canadian Competitio n

Policy 1888-1983 (Montreal: IRPP, 1984) at 123–26.

10Ibid. See al so Bruce Dunlop, “Price Dis crimination, Pred atory Pricing and Sys-

tematic Deliver ed Pricing,” ch 17 in J Robert S Pritchard , William T Stanbur y &

Thomas A Wilson , eds, Canadian Competition L aw, Essays in Law and Economics

(Toronto: Butterworths, 1979) at 406–7 [Dunlop].