Canadian COMPETITION LAW

Umbrella pricing (cartel/conspiracy law).

Orrick, “EU Advocate General Confirms Availability of ‘Umbrella Claims’ Against Cartel Members” (April 15, 2014): “In her recent opinion to the Court of Justice of the European Union (CoJ), Advocate General Juliane Kokott stated that loss resulting from ‘umbrella pricing’ is recoverable from cartel members. Umbrella pricing is when a company that is not a member of a cartel raises its prices by more than the amount that would be expected under normal competitive conditions, as a result of the cartel. The opinion, from Jan. 30, 2014, follows a reference to the CoJ by an Austrian court hearing a damages action brought against providers of services for escalators and lifts (see COMP/38.823).”

Unannounced Inspection (cartel/conspiracy law).

A term used in the U.K. and Europe for a “dawn raid” or search (i.e., a search of a premises under court order or warrant).

Dawn Raid

International Competition Network, Anti-Cartel Enforcement Manual (May, 2009): “Search and raid terms are terms variously used by competition agencies to refer to the process of examining and removing records from a premises.”

In Canada, the Competition Bureau has a wide range of enforcement powers available to investigate potential violations of the Competition Act, including the ability to obtain search warrants (under section 15 of the Act), document production orders, orders compelling testimony under oath (under section 11 of the Act) and wiretaps (under the Criminal Code).  The execution of search warrants by the Bureau, which can be used in both civil and criminal cases, is sometimes referred to as a “dawn raid”, given that such inspections commonly begin in the morning and are unannounced.

For more information, see: Conspiracy and Conspiracy FAQs. See also: Canadian Competition Law Enforcement.

Unilateral effects (competition/antitrust law economics).

Competition/antitrust enforcement agencies often consider two main types of anti-competitive effects arising from a merger: (i) unilateral effects; and (ii) coordinated effects.

Competition Bureau, Merger Enforcement Guidelines: “A unilateral exercise of market power can occur when a merger enables the merged firm to profitably sustain higher prices than those that would exist in the absence of the merger, without relying on competitors’ accommodating responses. … A unilateral exercise of market power occurs when the merged firm can profitably sustain a material price increase without effective discipline from competitive responses by rivals.”

U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines: “The elimination of competition between two firms that results from their merger may alone constitute a substantial lessening of competition. Such unilateral effects are most apparent in a merger to monopoly in a relevant market, but are by no means limited to that case. … A merger may result in different unilateral effects along different dimensions of competition. For example, a merger may increase prices in the short term but not raise longer-term concerns about innovation, either because rivals will provide sufficient innovation competition or because the merger will generate cognizable research and development efficiencies.”

U.S. Federal Trade Commission, Guide to the Antitrust Laws: “A merger may also create the opportunity for a unilateral anticompetitive effect. This type of harm is most obvious in the case of a merger to monopoly — when the merging firms are the only competitors in a market. But a merger may also allow a unilateral price increase in markets where the merging firms sell products that customers believe are particularly close substitutes.  After the merger, the merged firm may be able to raise prices profitably without losing many sales. Such a price increase will be profitable for the merged firm if a sufficient portion of customers would switch between its products rather than switch to products of other firms, and other firms cannot reposition their products to entice customers away.”

OECD/ Policy Roundtable Report, Economic Evidence in Merger Analysis (2011): “The theory of harm in unilateral effects cases is generally understood and clearly articulated in the literature. The basic intuition is that a merger of two firms that were previously imposing a competitive constraint on each other will lead to a loss of competition between the two firms and hence to a price rise.  If products are not homogeneous, then the first round effect of a merger of substitutes is that prices of those products will rise.  This is likely to lead to second round effects as other firms respond to the price rise of the merged entity.  Whilst the effect is likely to be strongest where the merging parties are each other’s closest competitors, the economic logic holds as long as the cross-price elasticity of demand between the firms’ products is positive.”

EU Guidelines on the Assessment of Horizontal Mergers (2004): “The most direct effect of the merger will be the loss of competition between the merging firms.  For example, if prior to the merger one of the merging firms had raised its price, it would have lost some sales to the other merging firm. The merger removes this particular constraint. Non-merging firms in the same market can also benefit from the reduction of competitive pressure that results from the merger, since the merging firms’ price increase may switch some demand to the rival firms, which, in turn, may find it profitable to increase their prices.”

Australian Merger Guidelines (2008): “Horizontal mergers may give rise to unilateral effects by eliminating the actual or potential competitive constraint that the merger parties exerted on each other pre-merger. Two competing firms may constrain each other, including via the (actual or potential) transfer of sales from one to the other as customers switch, or threaten to switch, between them.  If these two firms merge, the merger ‘internalises’ any such transfers within the merged firm, thereby removing this constraining effect. Where there are limited effective constraints from other sources, this unilateral effect can amount to a substantial lessening of competition.”

See also the definition of “coordinated effects”.

Unsubscribe mechanism (Canadian anti-spam law (CASL)).

In addition to consent and identification requirements, Canada’s federal anti-spam legislation (CASL) also requires that commercial electronic messages (CEMs) include an easy unsubscribe mechanism. The specific requirements for a CASL-compliant unsubscribe include: (i) CEMs must include an unsubscribe mechanism; (ii) the unsubscribe mechanism must be set out clearly and prominently; (iii) the unsubscribe mechanism specifies and electronic address or web link where the unsubscribe request can be made (links must be valid for a minimum of 60 days after the message is sent); (iv) for SMS messages, users can choose between replying “STOP” or “Unsubscribe” or by clicking a link to a web page to unsubscribe from some or all messages; (v) recipients can unsubscribe by clicking a link or via a web page where they are given options for unsubscribing from some or all messages; (vi) recipients that request to be unsubscribed are unsubscribed within 10 business days; and (vii) the unsubscribe mechanism can be readily performed and is simple, quick and easy.

For more information about CASL, see: CASL (Anti-Spam Law), CASL Compliance, CASL Compliance Tips, CASL Compliance Errors, CASL FAQs, Contests and CASL.

For more information about the CASL compliance checklists and precedents that we offer for sale, see: CASL Compliance Checklists and Precedents.

Upstream/downstream markets (competition/antitrust law market definition).

Competition Bureau, Competitor Collaboration Guidelines (2009):  “Where applicable, the Bureau will consider whether an agreement is likely to substantially lessen or prevent competition in the relevant market in which products are supplied by the parties (the ‘downstream market’) and in the relevant market in which inputs are purchased by the parties (the ‘upstream market’).”

Upward pricing pressure (“UPP”) test (competition/antitrust law economics).

An alternative approach to market definition and concentration as a means of estimating the anti-competitive effects of a merger.  Developed by Joseph Farrell and Carl Shapiro.  This test is being used by the U.S. antitrust enforcement agencies (the U.S. Department of Justice and Federal Trade Commission) in some cases and to some extent in Canada.

For example, in the Competition Bureau’s 2011 Merger Enforcement Guidelines the Bureau states:  “In determining whether a merger is likely to create, maintain or enhance market power, the Bureau must examine the competitive effects of the merger. This exercise generally involves defining the relevant markets and assessing the competitive effects of the merger in those markets. Market definition is not necessarily the initial step, or a required step, but generally is undertaken. The same evidence may be relevant and contribute to both the definition of relevant markets and the assessment of competitive effects. Merger review is often an iterative process in which evidence respecting the relevant market and market shares is considered alongside other evidence of competitive effects, with the analysis of each informing and complementing the other.”

See also U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines: “Adverse unilateral price effects can arise when the merger gives the merged entity an incentive to raise the price of a product previously sold by one merging firm and thereby divert sales to products previously sold by the other merging firm, boosting the profits on the latter products. Taking as given other prices and product offerings, that boost to profits is equal to the value to the merged firm of the sales diverted to those products. The value of sales diverted to a product is equal to the number of units diverted to that product multiplied by the margin between price and incremental cost on that product. In some cases, where sufficient information is available, the Agencies assess the value of diverted sales, which can serve as an indicator of the upward pricing pressure on the first product resulting from the merger. Diagnosing unilateral price effects based on the value of diverted sales need not rely on market definition or the calculation of market shares and concentration. The Agencies rely much more on the value of diverted sales than on the level of the HHI for diagnosing unilateral price effects in markets with differentiated products. If the value of diverted sales is proportionately small, significant unilateral price effects are unlikely.”

Urgency cues (advertising/marketing law).

Competition Bureau, The Deceptive Marketing Practices Digest – Volume 6 (April 17, 2023): “Fake scarcity cues online. The urgency is fake, but the deception is real. You’re shopping online and a product catches your eye. But what’s this? A pop-up informs you there are only two left! Worse yet, 15 people are looking at the very same item right now! Your heart starts to race, you know you need to act fast if you don’t want to miss out on this deal. You rush to enter your credit card details and experience a sense of relief when the purchase is complete.

This scenario plays out daily for consumers in the digital economy, and it is an example of the power and influence of what are called “scarcity cues” online. Scarcity cues are representations, or claims, that suggest low availability of a product or service, effectively signaling to consumers that they must act fast before the offer is gone. Such claims can induce consumers to make an impulsive or relatively uninformed decision to quickly grab a great deal before someone else beats them to it.

Businesses can also add so-called social proof tactics to the mix, using various methods to let consumers know that other consumers like or want the same product. Social proof can be used to suggest there is high demand for a product and/or that the product is highly attractive or desirable. The sense of urgency is compounded when a consumer believes a product is both scarce and in high demand.”

See also, Scarcity Cues.

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