April 28, 2014
Like many, I’ve been following a few of the more interesting local regulation (restraint?) and competition cases, including Tesla’s efforts to sell directly to consumers in a few U.S. states; Uber’s ongoing (and now increasingly global it seems) challenge to circumvent – through guts and innovation – local taxi regulations; and the ongoing, and at times slightly surreal, Ontario liquor retailing debate (in which corner stores are making efforts to compete with two incumbent liquor retailers).
In somewhat the same vein, a short article in the South China Morning Post caught my eye on my daily media sweep earlier today (yes a lot of odd competition news articles flow into my inbox) – this one about several gold retailer associations and gold retailers in Hong Kong arguing why competition would be bad in gold retailing (see: here).
In many of these cases, and many, many others over the past century, it seems to me that the same arguments are repeatedly made as to why competition is bad. It’s a little like hearing the same song over and over again. In no particular order, here are some of my favourites – a quick Monday morning scribble about competition:
Consumers are better off with stable and predictable prices. Hmm, most consumers I know, including myself, like low prices not stable prices. Price war or maverick new entrant? Even better. I don’t know about others, but my preference is that suppliers not tell me what a suitable or appropriate price should be. Call me kooky, but my view is that that “invisible hand” thing is a lot better than competing suppliers chit chatting about rates and then telling me what they think the price should be.
Different prices will confuse consumers. This one’s a bit confusing in itself and came up in the Hong Kong gold retailers article earlier today (see link above). As in consumers can’t understand that different prices are the result of competition? Or there is more than one competing supplier? If competition means “confusion” in pricing, I’m all for confusion.
Fixed prices, markets or output is good for the parties to the agreement. Uh, yes, well that’s kind of the point of consumer protection oriented legislation (i.e., competition/antitrust laws) – i.e., we want producers competing not colluding. This cartel-justification nugget was rejected by Canadian courts around 1900ish, though curiously it did sway some Canadian courts before that point. (Yes, Canada has had competition law for a long, long time.)
Companies should be free to contract (aka why are those pesky regulators continually interfering with private rights to contract?) Freedom to contract is a pretty darn good concept and one that I am personally a fan of. Not, however, when it has significant distortions on the operation of the market. So, as I sometimes tell industry groups, pro-competitive joint ventures “good”. Bare market division, price-fixing, bid-rigging or output restriction agreements “bad”. Of course, between these two extremes is a vast amount of territory that often leads to the most interesting competition/antitrust fights – e.g., hub-and-spoke cartels, conscious parallelism, “signaling” cases, JVs that mix and mingle pro-competitive objectives with naked restraints, to name a very few. These are obviously not clear cases and deserve to be debated, but naked cartel agreements are not “freedom to contract” but throwing a spanner in the operation of the market. Can’t have those.
Certain business models are necessary to provide an “adequate” level of service or “protect” consumers. I particularly like this one, which is commonly brought out by industry groups when facing new technology, a vigorous new entrant or business model or change in an industry. To me, this one often confuses the type of business model with minimum legitimate safeguards that may be necessary to protect consumers. A good example is being raised in the ongoing Ontario liquor retailing debate – i.e., that the particular incumbent liquor retailers are uniquely able to check ID, screen under age buyers, etc. It seems to me that the solution to this one is often, if not always, not to regulate the type of business model, but to require all players to adhere to standardized consumer protection safeguards. Yes, it is possible to have one (consumer protection) without the other (quotas on competitors).
“Competition” or “advertising” is unethical. This old chestnut is also sometimes brought out by industry groups or associations when facing new business models, innovation or increased marketing / advertising by competitors. To me, one ought to be very skeptical when a regulator or industry group labels what looks like a good thing – i.e., competition, innovation or more choice – as “unethical”. While yes, false or deceptive advertising may for example be unethical, the term is sometimes used as code for competitor activity that’s disrupting the status quo. Unfortunately, sometimes incumbents are able to persuade regulators that truthful, hard-hitting advertising should be restricted, some business models prohibited, etc.
The market (whatever market is being debated) is “already very competitive”. This one is a real head scratcher in most cases. The point, at least if one believes in the market, is not whether a market is “competitive” or “very competitive”, but rather that market forces should be left to do their job. Unfortunately we’re seeing this in Canada in telecom with the Federal Government persistently attempting to balance its desire for a fourth national wireless player against continuing restrictions on foreign investment in the telecom sector. In sum, while this point of course this depends on one’s perspective (i.e., market v. market control/regulation), I prefer the “invisible hand” of the market to the “visible hand” of regulators (whether governmental or industry regulators) when it comes to controlling the number of competitors.
We “respect” our competitors. A further justification for a lack of competition is sometimes phrased as “we respect our competitors”. This one has been coming up in the ongoing Charbonneau corruption probe in Quebec. Typically code, of course, for “we don’t want a war” and prefer to stay in our agreed territories. In competition terms, war is good. I too “respect” my colleagues in the legal profession. That does not mean, however, that I don’t want to compete, win market share or innovate.
Some competitors will be eliminated. Yep, that’s competition. The market will decide who wins, who loses and who needs to re-group to take another run. Through this process, called “competition”, we get new ideas, new products, better processes and resources are, it is hoped, allocated to the most efficient and innovative. Darwinian? Yes slightly, but better in my estimation than the Soviet model with one brand of bread on the shelf, if you can get one.
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