Canadian COMPETITION LAW

August 23, 2014

I paid a visit to my lawyer earlier today.  Nothing serious – I needed some assistance with an estate I’m involved with.  Yes, even lawyers sometimes need lawyers.  In any event, I’m a competition lawyer as I’m sure you know. I practice in this area because I find it very interesting, even after 12 years in practice, and because I think it’s important – i.e., that markets operate competitively, companies compete fairly and that consumers, companies and economies benefit from competitive and efficient markets.

So, I get a little fussed when I see governments “throttling” competition for a variety of reasons, including that there is “enough competition”, there are competing valid interests (in cases when that is nonsense) or when institutionalized restraints on competition appear simply too difficult to change (as is arguably the case with some persisting Canadian “supply management” markets).

In this vein, earlier today as I say I went to see my lawyer and the building management was holding an “ice cream day” (or something to that effect) in the lobby for building tenants with two tables lined with buckets of ice cream, personnel with scoopers and loud festive music playing.

When I came down to the lobby after seeing my lawyer I heard a greeter shout: “There are two lines, both are equal and there are three flavors of ice cream for everyone!”.  What could possibly be better? – free ice cream and three flavours to boot.

Needless to say, the elevators (mine appeared overly full) seemed to press enthusiastically toward one or the other tables that were loaded with exactly three flavors of ice cream – enormous tubs, and the music, enthusiastic scoopers, etc.

In fact, I had slight difficulty getting out of the lobby due to the number of office workers looking for their flavor of ice cream (or already enjoying it, albeit in what I thought small cups with plastic spoons).

Now of course this post is not about ice cream, but competition.  It seems to me that, among other things, the current and important debate in Ontario about the degree of appropriate liquor and beer retailing competition is a very close parallel to this ice cream scene in my local office tower.

As far as I can tell from the months (years?) of debate between the Ontario Government, The Beer Store, Ontario convenience stores, major wineries’ retail outlets and consumers and commentators is that more individuals and companies want to retail beer and wine (i.e., as many flavours as the market wants) while the Ontario Government, Beer Store and perhaps some other incumbents don’t want that to happen (i.e., three flavours is enough).

In this respect, the C.D. Howe Institute issued a few days ago a new report calling for increased competition in Ontario’s liquor retailing system entitled, appropriately, Uncorking a Strange Brew: The Need for More Competition Ontario’s Alcoholic Beverage Retailing System (written by Paul R. Masson and Anindya Sen).

This report argues, among other things, that first, lack of existing liquor retailing competition in Ontario means higher prices for consumers than, for example, in Quebec; second, liberalizing liquor retailing would lead to lower prices, more government revenue and consumer convenience; and third, that private beer and wine retailing is for the most part apparently dominated by The Beer Store and two major off-winery stores (according to the C.D. Howe’s report), which means significantly less choice for consumers and supra-competitive profits realized by the large incumbents.

The report makes three competition-focused recommendations: allow wine and beer sales in grocery and convenience stores; further liberalize beer retailing by licensing other retail outlets; and open up wine retailing by granting licenses for off-winery stores to more wineries and new wine retailers.

In short, the report makes recommendations that one would have thought uncontroversial in a market driven province and country: let other retailers compete in beer and wine retailing in Ontario.

Except, like my ice cream example, we are not in a market-driven economy but, unfortunately, sometimes one in which local and provincial governments (and on occasion our federal government) apparently see fit to act as central ice cream planners, I mean central planners.  So what we have in some markets in Canada is a situation where competition (the market) is balanced with government officials that know, or purport to know, how much competition is enough.  Huh?

In this respect, a particularly disturbing media report that caught my eye earlier today said that, when questioned about the C.D. Howe’s very fine report calling for more competition in Ontario liquor retailing, representatives of the Ontario Liberal government said:

“The strength of the LCBO model is in a balance between customer convenience and selling alcohol in a socially responsible manner.”

As I said in my Tweets and other social media today on this, Canadians don’t need a “balance” between competition and a completely erroneous and unrelated factor (the moral “socially responsible manner” of retailing cited by the Liberal government’s spokesperson).

What Canadians need is for markets to operate naturally and as freely as possible to determine whether provincial wine and beer retailing (or frankly most other markets) should be occupied by three retailers, thirty-three or a hundred and thirty-three.

In short, what we don’t want or need is our local, provincial and federal governments to play central planner or father knows best but, rather, put into place the conditions for effective and fair competition, whatever the market.

And, in my humble view, to suggest that only the LCBO, The Beer Store and existing off-winery retailers are the only ones capable of selling beer and wine in a “socially responsible manner” is condescending to small and medium sized businesses that are keen (and should be able) to compete with incumbents, insulting to Canadians that want more competition (both in this market and others) and suggests a continuing troubling trend in some Canadian markets to throttle competition with no clear policy rationales for doing so other than to protect incumbents.

In other words, in my humble view, we need more than three flavors of ice cream in Ontario wine and beer retailing.  Or, at minimum, to allow the market to determine how many flavours.

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