🪦 killing competition
Plinko, Shaggy + regulatory capture
Some of the key competition issues in digital markets were recently summarized in a G7 Compendium of Approaches to Improving Competition in Digital Markets. They are: digital advertising, the role of algorithms, marketplaces and app stores, and mergers.
As recently reminded during a CIGI event by panellist Brandon Schaufele, any conversation related to competition reform in a digital context needs to be built around the harms we are seeking to address. Answering that question helps us to determine whether the Competition Act is the best tool to address the ‘harm’ or challenge, or whether there are other policy levers that are more appropriate. Often, competition issues intersect with consumer protection. Recently I have been referring to this approach as the “PLINKO” process - where you take the issue/harm (ball) and drop it in the game board (analysis?) to understand where it ‘lands’ - is it actually a consumer protection issue, or best addressed through intellectual property law, or the province? Etc.
Now, this analogy falls apart when it seems as if the catalyst of a competition issue is determined randomly. This is not the case! I just want to stress that it’s useful to start with a clear articulation of a problem.
Another feature of any conversation on competition and digital is the question of whether and to what extent the competition challenges that digital platforms exemplify are ‘new.’ While this is an important question, I also notice it can be invoked to dismiss ‘digital’ issues by implying that they lack a dimension of novelty that would make them more worthy of interrogation and/or new legislative solutions.
A third aspect worth noting is a newer narrative I noticed, which is: “this is not the competition act’s fault” - this argument is often applied to ‘protected’ industries but is applicable elsewhere. I refer to this - in all seriousness - as “The Shaggy” -- “it wasn’t me.” I think The Shaggy Argument is worth paying attention to for two reasons: one, it IS sometimes true and two, it always raises interesting questions about whether and how other legislative levers are supposed to work together - or whether the argument is just sort of passing the buck.
This was a long lead-up. What I really wanted to say is that the funeral industry in Canada mirrors a lot of the competition challenges that consumers must navigate online - and they have a bonus challenge that digital regulation should learn from (TL;DR it’s a dysfunctional additional layer of regulation that hurts competition).
These issues are: hazy drip pricing, masked consolidation, and regulatory capture that manipulates markets.
1.Drip pricing that obscures the actual retail price
It is well-known that the funeral industry obscures the actual cost of various services through a practice called “drip pricing” - which is set to become a banned activity through recent amendments to the Competition Act that are currently contained in the Budget Implementation Act.
But other regulatory layers can also hide the actual price. For instance, in Nova Scotia, a funeral home operator has no legislative obligation to publicly post their pricing. This creates more work for consumers that need to call around to obtain quotes and pricing during an emotionally tumultuous time. Isn’t that weird?
Pricing breakdowns seem like they can be pretty complex - a lot of “if/then” scenarios that are challenging to portray over a phone call. In that way they are sort of ‘algorithmic’ in that there is a sort of built-in unknowability for the consumer and they are calculated through conditionality.
2. Masked consolidation that creates the illusion of competition
This occurs when the ownership of firms change but the name stays the same. It’s similar to the challenge presented by private-label brands. The largest corporate actors keep family names on the funeral home, which obscures that it is no longer an independent business. This is more of a consumer protection consideration, and a weird bee that persists in my metaphorical bonnet.
So what’s going on in Canada?
Service Corporation International (“SCI”) is the largest funeral firm in America and operates under “Dignity.” The largest publicly traded Canadian-owned funeral company Park Lawn Corporation does something similar - indicating that operators are a “division of Park Lawn Corporation.” “Arbor Memorial” is Canadian-only and has a special tab on their homepage about acquisitions. Big isn’t necessarily bad, but the larger these firms get, the more potential for them to exploit their power. Plus, it’s not always clear whether a funeral home is truly independent or privately owned. Blah.
Couple this with ‘captured’ regulatory bodies and you wind up with a situation where corporations are controlling the marketplace.
3. A weird one: the regulator prevents competition. A form of gatekeeping?
Here’s the strangest dimension of the funeral industry: often, its provincial regulatory bodies seem to be actively preventing behaviours that are generally healthy for competition - like competing on price. This could be because the composition of their oversight authorities are captured by industry.
In Ontario, the Bereavement Authority of Ontario (BAO) is a delegated authority. The equivalent in Alberta is the Alberta Funeral Services Regulatory Board (AFSRB). When you take a look at the composition of that board, 4 out of 6 of them work in funeral homes. In some cases, the regulators are within the Ministry of Services (e.g. Nova Scotia) and regulate multiple industries (usually the smaller provinces)
In Nova Scotia, there are website compliance rules under the Casket & Funeral Supply Association of America (CFSA) and Embalmers and Funeral Directors Act (EFDA) that prevent a competitor from benchmarking their pricing against someone else.
This regulatory capture that then manipulates the marketplace mirrors some of the issues in digital markets, where regulators are seeking to moderate the market power of the largest digital platforms.
Self-regulation of a market - like by an “arms-length” body mostly composed of industry insiders is similar to gatekeeping in digital markets - where the firm that owns and operates the marketplace can skew the terms of competition and moderate the marketplace in their interest(s).
Example: “No funeral home, funeral director, apprentice funeral director, embalmer or apprentice embalmer shall discredit or attack unfairly other funeral merchandise, services or exaggerate the importance of competitive services in any advertisement”
In this way, the funeral home marketplace is privileging the interests of businesses over those of consumers.
Previously, the Ontario Auditor General wanted the BAO to appoint members of the board that advocated for consumers. Here is the board’s response: 🤔
"The Board agreed that the appropriate number of directors for the BAO is ten (10) and the Board agreed that it is not necessary to appoint or identify a specific director on the Board whose unique mandate is to advocate for consumers as all Directors see themselves as representing consumers"
Preventing people [grieving families] from knowing the prices of various funeral services seems like it could be a form of deceptive marketing.
Preventing competitors from advertising their comparative price advantages seems strange, fake, and stupid.
😛 TL;DR (but maybe you DID read, because you are at the end of the post?)
We need to pay better attention to the regulatory structure of funeral services.
People are paying more than they need to for various funeral services, largely due to deceptive marketing practices like drip pricing and weird, protective practices reinforced by regulatory bodies that discourage price benchmarking.
“Death tech” disruptors like Eirene are working to achieve a more consumer-centric industry. In doing so, it seems like they are facing inappropriate opposition from the self-regulating body that is acting as a protectionist gatekeeper - like refusing licensing due to accurate advertising that compares prices and warns against drip-pricing.
In essence, a growing lack of competition in the funeral industry, likely facilitated by weak merger laws, is being reinforced by the self-regulating body that is protecting business interests over those of consumers.