MIL-OSI Translation: Populism, public interest and competition

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MIL OSI Translation. Canadian French to English –

Source: Government of Canada – MIL OSI Regional News

Speech by John Pecman, Commissioner of CompetitionC.D. Howe Institute, Toronto, 67 Yonge Street, Suite 300Friday, April 27, 2018, noon to 1:30 pm

Introduction

Thank you for the opportunity to be here. As this is the second time I have participated in this round table, I had to do something good the first time. To be honest, when I started working at the Bureau almost 35 years ago, I never imagined standing in front of a group talking about the pitfalls of the “hipster antitrust”. In fact, I never thought I would be part of a conversation involving the terms “hip” and “antitrust” in the same sentence; Nor is John Grisham, the best-selling author, who in his book “The Law of the Weakest” described the antitrust as “hopelessly dense and boring”.

In fact, when I talk about hipster antitrust, I’m talking about the idea that public interest considerations, which range from impacts for democracy and culture to inequality and industrial policy, need to be integrated the application of the law on competition. This approach is increasingly supported because of growing concerns, and I can even say “scary”, compared to big data.

As many of you know, the Competition Bureau has been actively engaged on these topics over the last year. So let me clarify some of the big data so that we share our views on what is called the antitrust hipster approach. We can then talk about what competition can and should do to support innovation.

big data

Let’s start with big data. Advances in information technology have led us into the age of data and into an increasingly data-driven economy. In addition, the use (or perhaps misuse) made by some of the largest companies in the big data digital space is a source of concern. These concerns gave rise to a very lively and passionate discussion on how to solve them. I think it goes without saying that big data has become the “question of the day” and generates a great deal of anxiety, especially when it comes to technology giants who have become well-known names.

Big data is a big promise: the opportunity to create innovative products and services that improve the lives of consumers. Google is an obvious example: Gmail, its Android operating system, its smart home devices such as Google Home and the search engine itself. Did I tell you that they were also working on an autonomous vehicle? These kinds of innovations have turned Google, and other technology companies, into some of the largest companies in the world.

However, many have expressed concerns about their size and increasing market power, as noted recently by the Bank of Canada’s first Deputy Governor.

Again, this fear is not unprecedented. Throughout history, there has been an obsession to rhyme “fat” with “bad” and what is called big data is no exception to this rule. More than a century ago, during the second industrial revolution, while electrification and railroading were the innovation of the moment, providing the infrastructure that fostered the growth of commercial giants, these same concerns were raised in relation to the significant increase in industrial concentration. And not just the concentration, but the increase in conglomerates that were active in a number of unrelated industries. Exactly as we find today the Amazon online market, Amazon cloud services and the Amazon (Whole Foods) grocery business. Some say that in the early 1900s, these concerns made Teddy Roosevelt a “dismantling trusts”. Indeed, Roosevelt has taken great advantage of popular anxiety over large corporations and channeled this anxiety into a policy that fueled a modern antitrust ideology and quite progressive. Roosevelt said in his State of the Union address in 1902: “We oppose bad conduct, not wealth. The capitalist who, alone or with his associates, achieves industrial feats through which he earns money is an actor of good, not evil, provided he only acts in a correct and legitimate manner [i]. It seems like Roosevelt, the beloved troll breaker, was not worried about size or scale, but about whether a company is engaging in harmful anti-competitive behavior or not. His work has also shown that populism and popular anxiety can be channeled into effective public policy by taking a thoughtful, tested and measured approach. Indeed, as Roosevelt imagined, when technology companies engage in anti-competitive behavior, the Bureau does not hesitate to investigate and take action in the event of evidence of competitive harm.

Law application

It is important to recognize that even though the term “big data” is new, the phenomenon itself is not. Companies have been compiling and using data for years; for example, Dunn & Bradstreet, which sells business data, began operations in the mid-19th century [ii] and the competition authorities have processed data on many occasions.

The Bureau is no exception. We have been working in the field of big data for years, since the time of the AC Nielsen case in 1995 [iii], where the Bureau argued that Nielsen had breached the abuse of dominance provisions by limiting access competitors to optical reader data, thus preventing new entrants from entering the market. Since that time, the Thomson – Reuters merger, as well as our more recent lawsuit against the Toronto Real Estate Board for limiting access to MLS data, both dealt with big data issues. Enforcement of the big data law remains an important and timely topic, and while the underlying concepts may not have changed, we know that the frequency with which we encounter these issues is likely to increase.

For this reason, the Bureau is actively engaged in the debate and continues to provide some transparency to our thinking. Since the fall, we have published two papers on this topic, a white paper and a synthesis document. These internationally renowned documents, as well as our associated consultations, have helped us develop our own internal thinking and advance public debate.

Our analysis of big data has led us to conclude that the key principles of competition law enforcement remain valid in big data surveys. In other words, the existing competition law enforcement framework is ready to deal with issues raised in big data investigations. Let me develop this aspect; the application of competition law is based on evidence. What this means is that if competition is attacked in the market, we will act. Conversely, if competition is not attacked, we will not do anything. In other words, what we will not do is take enforcement actions based solely on simple theories of long-term competitive harm potential, perhaps stemming from a fear of the “greatness” of a company. We know that this could do more harm than good. That said, it is true that there are elements of the application of competition law that involve a forecast analysis. But we will always base our decision-making on undeniable facts that take into account the potential for competitive harm.

Think of the anxiety that algorithmic collusion has created [iv] among some in the competitive community [v] – I am speaking here in particular of the idea that algorithms will collude in the long term without human intervention. I believe that it is unreasonable for the competition authorities to take steps to put an end to companies’ use of algorithms based on a potential concern, particularly in the absence of empirical evidence for suggest that this concern is deserved. To spend time investigating theoretical algorithmic collusion means removing limited resources from other areas in which we know the economy is affected.

Whether justified or not, the fact is that consumers remain concerned about the development of large technology companies. This is sometimes related to the level of concentration that exists on the market. But this is more often related to factors other than antitrust; Take, for example, Facebook data from third parties with perhaps less than benevolent interests. This recent revelation resulted in hearings of the House of Commons in Canada and congressional hearings in the United States, as well as an investigation by the Privacy Commissioner of Canada. Undeniably, big tech companies are big companies. But their magnitude is not without historic precedent. At the end of 2007, Exxon Mobil was one of the largest US companies and accounted for just over 3% of US GDP. At the end of 2016, Apple was one of the largest US companies and accounted for about 3% of US GDP [vi]. So I think we can say that size is not the only thing that matters. Obviously, what is also important for people is the fear that corporate behavior is hurting society; the idea that small independent retailers can not survive in an Amazon world, that Facebook is undermining democracy or that Google is violating our privacy rights or, more generally, that technical innovation itself exacerbates inequality. These may be valid concerns, but not all antitrust issues.

Public interest

Much of these concerns have been humorously labeled “antitrust hipster”. But it’s not just a group of thirty-something in a plaid shirt, craft beer in hand, who has this type of speech. Newspaper articles such as the Washington Post and the New York Times echoed these claims, with headlines proclaiming that monopolies pose an existential threat to democracy, which combined the competition at half-mast with aggravation. inequality and called for changes in antitrust law. The Harvard Business Review and The Economist seem to be arguing the case, arguing that changes to competition law are needed to deal with the “data economy.” Perhaps most prominently, Democrats in the United States have made adding public interest considerations to merger reviews a key element of their “Better Deal” platform [vii].

I want to be clear, my intention is not to diminish the legitimacy of public interest concerns; indeed, issues such as democracy, privacy and inequality are fundamental and must undoubtedly be addressed to build a fair, just and prosperous society.

The good question is whether antitrust is the appropriate tool to address social issues such as inequality and unemployment. I am very concerned about suggesting that competition law should move away from an economy-based standard of consumer welfare to a values-based public interest standard. My concern is easy to justify: competition law is most effective when it operates with clear and objective criteria, and incorporating public interest concerns into competition law prevents it. Moreover, this infuses politics into the process and it is better, as we know, to leave politics to those we elect to do. Competition authorities, as unelected bodies, are particularly ill-suited to making value judgments; in reality, this is the antithesis of our role, which consists of an objective and rigorous analysis. There are other public policy instruments that are much more appropriate for addressing social and cultural objectives.

There are also very good models for doing this without the competition authorities having to make value judgments for which they are not trained, equipped, or able to do. For example, the German competition authority, the Bundeskartellamt, only examines competition issues and its legislative framework establishes a strict separation between competition and non-competition issues. The framework, however, also allows the government, through its Minister of the Economy, to overturn merger decisions based on public policy considerations, provided that it is done in a justifiable and transparent manner. This “safety valve”, as it is called, is intended for use only in exceptional cases and therefore, very rarely – only nine times since the provision was included in the legislation in 1973 [viii] . This approach recognizes that public interest concerns sometimes prevail, but it offers a much better model for addressing these issues. It eliminates valuations based on the value of a non-elected law enforcement agency and leaves them appropriately to the government, which is accountable directly to the constituents it represents.

Legislators have a difficult task in finding a balance between many often competitive interests. But it is extremely important that they do not act reflexively in their reaction to these interests, using the application of competition law as the universal remedy for all the ills of society. Like Teddy Roosevelt, they must use public pressure constructively to develop thoughtful and effective public policy.

Efficiency gains

I just spent a lot of time talking to you about what the competition authorities should not do, so I want to draw your attention to what they have to do. But first and foremost, and in the same vein as what agencies, legislators and regulators should do, I’m sure you’re aware of the recent decision of the Supreme Court of Canada in the Comeau case. The Bureau has followed this matter closely. While the Supreme Court has clarified the rules on inter-provincial trade, I believe that regulators and regulators must continue to review laws and regulations to ensure that they are designed to meet the objectives of the provinces. public policy without unduly limiting competition. At the beginning of my speech, I talked about big data as an example of innovation – and as you know, sometimes I do not like using that term because it seems like we can not spend a day without hearing it. But this is new to no one. As I said in the past, we are all in the world at the heart of what I like to call the big innovation discussion. And there are a number of good reasons for this: Innovation is the key to economic success in the short and long term. It facilitates the creation of better products and services, enables businesses to reduce costs and increase productivity, and is critical to inclusive growth in the vibrant digital economy. In short, it is good for business and for consumers.

So, of course, lawmakers and policy-makers as well as the media and academics all want to talk about innovation and how to stimulate it in our conference rooms and classrooms. We are talking about doing it through interesting tax policies, the development of supergrapples, direct investment and professional training.

My role here is to make sure that competition, one of the things that contributes the most to innovation, is not excluded from the debate. Competition and innovation are closely linked; competition promotes innovation. Without competitors competing in a dynamic market, what would drive businesses to improve? How will the “next Google” dethrone the current if not by competition?

There is ample evidence to highlight the importance of competition for innovation, economic growth and prosperity for all. I therefore firmly believe that it is my duty, and the duty of my colleagues in the Office, to ensure not only that competition is part of the conversation, but that our framework for the law is oriented in the best way to support innovation.

As I said before, this is usually the case. However, there are aspects of our legislation that impede competition, innovation, and ultimately the Canadian economy.

I refer, of course, to section 96 of the Competition Act, the defense of efficiencies.

It is no secret that my idea is that, unlike innovation, the defense of efficiencies hurts businesses and consumers. It is also inconsistent with the approach taken by many of our country’s major trading partners, including the United States.

Our decision in Superior / Canexus is a good example. We worked closely with our US counterparts on this merger review and all came to the conclusion that the merger would likely have anti-competitive effects, namely higher prices and fewer choices. Our approaches, however, differed considerably; the United States has been able to challenge the merger under its law, which requires the so-called efficiencies to be passed on to consumers, thus making consumer welfare a primary concern. The Bureau, for its part, did not challenge the merger because of section 96.

This approach ensures that Canada accepts a reduction in competition in exchange for static and short-term fixed cost savings, which may not materialize after the merger. I’d like to expand on why it’s a problem.

In the 1960s, economist Harvey Leibenstein introduced us to the concept of inefficiency X [ix], which tells us that companies that are not driven to innovate become lax and ineffective, a concept that has been confirmed in the past. over the next 50 years. We know that competition, and the opportunity to become a leader, drives innovation and efficiency. And let’s be clear, innovation is not just a façade, it’s about processes and best practices. Take for example modern accounting principles, arguably one of the greatest innovations of the 19th century. They were born directly from competition among railway companies as they tried to outdo each other in terms of the efficient operation and control of very large organizations.

There is ample public evidence that companies that are not subject to competitive pressure lose a lot of efficiency and fail to innovate.

Let’s take a Canadian example. In Canada, we are quite proud of our emerging wine industry, and rightly so, because Canadian winemakers are making a coveted, high quality product around the world. But this has not always been the case. Prior to the 1987 Canada-US Free Trade Agreement, Canada’s wine industry was isolated from competition and, unsurprisingly, was not prepared to meet the challenge of international competition. [X] This agreement put an end to this protection, by forcing the producers to innovate or close shop. The result is a significantly modified and highly competitive industry, unique products and new industries such as tourist attractions [xi]. This, combined with the establishment of VQA standards, has given the Canadian wine industry international fame and is a case study of innovation driven by competition. It also means I can now enjoy the great local Niagara wine where I grew up!

Yes, it gives food for thought and I really want to have the opportunity to dissect during questions and answers.

But let me give you one last thought: Knowing what we know about the inextricable link between competition and innovation, the question we should ask ourselves is: why are we exchanging the gains of competition? dynamic – which, according to the evidence, is very important – for small static efficiencies? While there is some case for this approach, including a recent CDHowe document that stated that allowing firms to achieve static short-term efficiency gains under Article 96 is essential for These arguments fail to recognize the dynamic efficiency gains from competition that eclipse the efficiency gains of Article 96.

In addition, the creation of market power in certain sectors of the Canadian economy due to the defense of efficiencies undoubtedly increases the costs of the main inputs of the Canadian economy, particularly for the export sectors that rely on competitive inputs to compete in the international market. Believe me, there are many more companies that complain about the higher market power and higher prices than there are parties to mergers that boast fixed cost reductions.

In a powerful incidental remark in the Tervita decision of the Supreme Court, Rothstein J. noted that the case did not appear to reflect the political considerations that Parliament probably had in mind when it created the defense of efficiencies. With my 34 years of experience, I can tell you that this thinking extends to business beyond Tervita.

As far as I’m concerned, we have to be careful to keep the overall picture in mind and not focus on bullion savings when assessing the impact of mergers on the Canadian economy. It is high time that we reassess the desirability of defending efficiencies to promote an innovative and competitive economy, particularly with respect to international competition. There are significant gains to be made for the Canadian economy and for those who participate in it, by aligning our efficiency approach with that of other modern competition authorities. I sincerely believe that Canada must move forward and get going.

Now, why not go to questions and answers? I look forward to our discussion, and if it goes well, I can perhaps hope for a third invitation to this round table!

[i] http://www.presidency.ucsb.edu/ws/index.php?pid=29543 (English only)

[ii] http://www.dnb.com/ca-en/about-us/company/history.html

[iii] Director of Investigation and Research v. D & B Companies of Canada Ltd. (A.C.NIELSEN) (1994).

[iv] https://www.economist.com/news/finance-and-economics/21721648-trustbusters-might-have-fight-algorithms-algorithms-price-bots-can-collude (English only)

[v] https://globalcompetitionreview.com/article/1144015/whish-urges-restraint-on-algorithmic-collusion (English only)

[vi] FT 500 – 2007 and 2017

[vii] https://abetterdeal.democraticleader.gov/crack-down-on-abuse-of-power/ (English only)

[viii] https://one.oecd.org/document/DAF/COMP/WP3/WD(2016)3/en/pdf (English only)

[ix] https://msuweb.montclair.edu/~lebelp/LeibensteinXEffAER1966.pdf (English only)

[x] http://www.csls.ca/reports/csls2008-3.pdf (English only)

[xi] https://www.ic.gc.ca/eic/site/cprp-gepmc.nsf/vwapj/Find_to_Gain.pdf/$FILE/Find_to_Gain.pdf

EDITOR’S NOTE: This article is a translation. Please forgive us should the grammar and / or sentence structure not be perfect.

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