💤 a sleeper hit

Why Shopify should inform Canada’s competition playbook

Daniel Viola @dannyviola

I hope our party leaders stick to the real issue this election cycle: cocktail prices are now way too high.

---

Canada’s competition law failures are the election sleeper issue that no one is talking about.

We are missing a critical opportunity to confront and define one of the most pressing issues of our time. 

Political parties are dancing around the urgent need for comprehensive competition reform, focussing instead on narrow slices of the problem like telecommunications. And yet competition policy is a pocketbook issue jackpot that extends far beyond the prospect of Rogers and Shaw merging.  

Concerns about the cost of living are concerns about competition. As Canadians, we tend to talk around the realities of our anti-competitive country. Canadian policymakers are cautious when it comes to potentially modernizing the Competition Act. Further limiting visibility of the potential of competition reform is the fact that the file lacks visible and consistent political leadership - which is to say, Canada doesn’t quite have an Amy Klubochar or a Lina Khan. 

Toronto Star @TorontoStar

With rising prices for everything from homes to food and even used cars, Canadians are worried that life is becoming even more unaffordable.

torstar.coThe affordability crisis: Why is everything suddenly getting so expensive? (And can politicians really do anything about it?)Economists say national politicians’ options are mostly limited to what they can’t do, won’t do, or won’t work quickly.

The fact that the odds are stacked against independent businesses is not just a natural function of capitalism, but of the literal rule book that dictates legal business tactics - the Competition Act. The persistence of our efficiency defence makes it difficult to challenge the Bureau’s judgement of mergers. Our conversations about “technology” villainize “big tech” firms and totally ignore the Canadian firms that deploy near-identical business tactics. And digital platforms are not well captured under the current Act, opening the door to implicitly promoting potentially anti-competitive behaviours like self-preferencing. 

While the Liberals have yet to release their platform, I hope they will commit to reviewing the Act, as was previously anticipated this spring. 

The Conservative’s platform acknowledges that we need to ensure a level playing field for Canadian businesses. It also promises harsher penalties for executives and companies that fix prices or abuse their dominant positions. However, without the authority to conduct market studies and with an arbitrary threshold for merger reviews, the Bureau is hamstrung when it comes to proving collusive actions even though the Bureau can challenge any merger (if they’re aware of it). Without legislative reform, the bar for blocking a merger in this country will remain ludicrously high, making the regulator’s ability to pump the brakes unlikely. The O’Toole platform also supports workers, noting that under an O’Toole government, mergers that reduce competition and lead to layoffs and higher prices will be rejected. 

In contrast, the NDP’s platform missed a massive opportunity to connect competition policy reform to improved labour standards. A new report from the CCPA outlines how the Competition Act can be improved to better protect workers. Even the C.D. Howe Institute is optimistic about updating the Act for workers, focussing on wage-fixing and anti-poaching employer deals. 

The NDP’s promises on telecommunications were vague and do not seem achievable. The aspiration that we will solve rural broadband connectivity issues in 4 quick years, while also standing up a Crown Corporation for rural broadband suggests that the party may be more about ideology than concrete competition solutions.

Small businesses - arguably the backbone of our economy - are slipping away.

Business closures doubled at the height of the pandemic.  As reported by The Logic, a report from the National Angel Capital Organization (NACO) found that Canadian angel investors were shy to invest in early stage companies. While this hesitancy could be a temporary response to the uncertainty of COVID-19, it is alarming. If it is the case that investors prefer more established companies over startups, new entrants that already operate in markets where there is a concentration of power will have a harder time accessing the capital that they need in order to take risks and grow. 

We should not rush to replicate the regimes or tactics of the US or EU. That’s not what modernization is going to look like for Canada. Instead, we should make a Pinterest board of inspiration from our hometown tech giant: Shopify. What Canada needs is to similarly unleash independent thinkers that can point to powerful ways that the terms of competition need to be amended to ensure a level playing field; be that through private action tribunals, ditching the efficiencies defense, amending the merger review threshold, or just getting better data on consolidation trends in this country to stimulate a national dialogue. PS. Would it be impossible to have a basic ledger of *every* merger, similar to the patent registry?   

Shopify empowers independent businesses by providing the “virtually invisible” digital infrastructure to create more competition with a few clicks. As we prime our minds to reconcile with the comfortable oligopolies that have come to characterise the country, legislators must similarly “arm the rebels” and work to ensure that we have the right regulatory guardrails to promote and protect vigorous competition in a digital [and analogue!] context. 

Shopify helps entrepreneurs all over the world start companies and create online stores, but the firm cannot single-handedly eliminate every single e-commerce challenge that their merchants face. Better public policy - similarly virtually invisible -  is what is needed to support these firms in scaling. In his 2018 letter to shareholders, founder and CEO Tobi Lütke warned of the risk of mega-companies consolidating power. In a way, the firm exemplifies what Canada’s philosophical approach to competition policy should be: relentlessly focussed on ensuring that independent businesses have the tools that they need to thrive, and brave enough to rebuild the requisite regulatory environments. 

Vass Bednar is the Executive Director of McMaster University’s new Master of Public Policy in Digital Society Program.