Canadian COMPETITION LAW

February 10, 2014

In a curious bit of competitive beer market rivalry, The Beer Store and the Ontario Convenience Stores Association were issuing dueling news releases earlier today about the debated deregulation of liquor retailing in Ontario.  Today’s beer competition duel, it seems, began with The Beer Store issuing a (Beer Store commissioned) report arguing that more competition in beer retailing in Ontario would lead to higher prices.  Something of a head scratcher for a competition lawyer such as myself, given that more competition generally leads to lower prices.

No, says The Beer Store, deregulated alcohol sales in the province would “drive up prices, harm communities and lead to hundreds of millions of dollars in lost tax revenue”.  That doesn’t sound very good.  But is it true?  The Beer Store is relying, it appears, on several core arguments for this conclusion: first, Ontario’s current beer prices (which The Beer Store says are some of the lowest in Canada); that convenience stores are more likely to sell liquor to minors; and data relating to selection and prices in Alberta and British Columbia as comparator markets (where The Beer Store says prices have risen and selection dropped following deregulation).

The Beer Store’s new (rather counterintuitive, to say the least) report was followed by a rebuttal from the Ontario Convenience Stores Association (see: here).  The Association criticized The Beer Store’s report based on a lack of independent testing, by citing another report that the Association said shows convenience stores actually score higher on not selling to underage customers and based on the convenience store data used by The Beer Store (which the Association says is “skewed” by using 80% non-chain stores).

Then The Beer Store issued another press release claiming that the Ontario Convenience Stores Association “flip-flopped” on its initial argument that the deregulation of liquor sales in Ontario would lead to lower prices.  In challenging the Association, The Beer Store quoted remarks made by the Association’s President in the Toronto Sun (see: here) saying the Association “never advocated that [Ontario convenience stores] were going to offer cheap beer to anybody.”  The Beer Store then once again cited Ontario’s claimed low liquor prices and comparator data from Alberta and BC.

All in all a fascinating real-time policy fight played out in the media earlier and very timely as well given that the Competition Bureau is currently reviewing competition in Ontario beer marketing as part of its ongoing advocacy initiative (see: here).

While I’m not claiming to be expert on beer retailing (though isn’t it largely putting bottles on shelves?), I must say I was pretty skeptical when I read The Beer Store’s arguments that more competition would mean higher prices for several reasons.

First, to say that there should not be more competition because prices are already low ignores the obvious fact that, unless more competition is introduced, it is impossible to know where the competitive price will lie (or product choice or services will be if consumers are given more choice).  This argument struck me as reminiscent of recent commissioned research by Canada’s major incumbent wireless carriers that argued, essentially, that wireless competition in Canada was already pretty competitive. The question, however, is whether competition in liquor retailing in Ontario, like wireless, should be more competitive and whether new players, other than only the foreign-controlled Beer Store joint venture, should also have an opportunity to compete in retailing (though there may be a dual distribution issue, depending on what 3rd party / non-Beer Store JV beer is available to convenience stores).

Second, while using comparative markets (such as Alberta and BC) is a common economic tool to assess competitive effects, the real question is the effects of more liquor retailing competition in Ontario (for example, if there are any significant differences between Ontario and BC/Alberta, then those other provinces are not necessarily good proxies for what would occur in Ontario if liquor retailing was deregulated).  One potential significant distinction, pointed out in the media today, are the differences in size and concentration of Ontario v. BC and Alberta (which may have a bearing on distribution costs).  A number of other commentators have also noted that prices for some products are also indeed lower, despite the Beer Store’s data, in deregulated provinces like Alberta.   As a beer drinker myself, and spending time in both Toronto and Vancouver, I concede that prices are higher in BC for some products at private outlets.  There is, however, a fair degree of differentiation as well based presumably on, yes, competition.  These include more locations, later hours, delivery, craft and specialty beers not offered by government outlets and wider refrigerated stock.  In other words, price is not the only dimension of competition.

Third, as a competition lawyer, my view is that the general rule should be more competition, not regulation, to determine where price and choice lie, except in relatively rare instances (e.g., where competing policy rationales trump competition or mean that it should be tempered; or cautiously in markets where monopolies should be preserved to encourage/incentivize investment, scale, etc.).  To be honest, it’s difficult to see why non-Beer Store retailers should not be permitted to compete and hard to see increased entry as not incentivizing The Beer Store to compete more aggressively.

Finally, any prediction about the state of competition in the absence of regulation or competitive restraints is, well, just that – a prediction.  The only true indicator of competition is to allow markets to operate effectively and with no (or few) restraints.  And, at the end of the day, isn’t this really largely about bottles on shelves (i.e., retail).

As for The Beer Store’s claims that convenience stores are more likely to sell to minors, several things occurred to me (apart from the obvious rhetoric). First, this would seem to be an issue fairly easily dealt with through regulation/enforcement (isn’t that what happens now with tobacco sales?). And second, it is difficult to see much (if any) distinction between the one category of retailer and another, except the claims of one to be more virtuous vis-a-vis sales to minors.  It also seems to me that the argument that more competition will have a negative impact on consumer safety (e.g., increased access by minors), is the same unfounded argument that is being raised in the debates about increased taxi competition – for example, in Toronto, the U.S., Australia and elsewhere.  Isn’t the answer to regulate the safety aspects, while allowing more competition (but ensure that new entrants meet a uniform safety standard)?

My view?  Let the convenience stores have their beer and compete and give Ontarians more choice. And as for the predictions of The Beer Store?  Let the market decide.

____________________

SERVICES AND CONTACT

I am a Toronto competition and advertising lawyer offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law.  I also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.

My experience includes advising clients in Toronto, Canada and the US on the application of Canadian competition and regulatory laws and I have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal, pricing and distribution, Investment Canada Act and merger matters. For more information about my competition and advertising law services see: competition law services.

To contact me about a potential legal matter, see: contact

For more regulatory law updates follow me on Twitter: @CanadaAttorney

Comments are closed.