Monopolies Killed My Hometown | E09: The Efficiences Defense

In today's episode I review a memo written by the Competition Policy Council at the C.D. Howe institute called, "The Efficiencies Exception, Let's Keep it." The efficiencies exception, or efficiencies defense, is an odd section of our Competition Act which allows the Bureau and Tribunal to approve mergers with anti-competitive effects that are predicted to have more efficiencies than costs. The theory is this will make firms more competitive internationally, even though it may cost individual Canadians more personally, or even cause people to lose their jobs.

I argue this does not line up with the values we have as Canadians, and needs to be removed from our Competition Act when we complete the review of the act.

Show Notes

This episode is being posted 1 day early because I have exciting news. Thursday, August 11th at 12:00 pm EST is the free, online launch event for the Canadian Anti-Monopoly Project. This is a new think-tank and advocacy group that myself, Robin Shaban, and Keldon Bester have started. Register for the event here. Hope to see you there.

In today's episode I review a memo written by the Competition Policy Council at the C.D. Howe Institute called, "Efficiencies Exception: Let's Keep It." The efficiencies exception, or efficiencies defense, is an odd section of our Competition Act which allows the Bureau and Tribunal to approve mergers with anti-competitive effects that are predicted to have more efficiencies than costs. The theory is this will make firms more competitive internationally, even though it may cost individual Canadians more personally, or even cause people to lose their jobs.

We have used this defense in the past to allow anti-competitive mergers, the two most famous cases are the 1998 purchase of ICG Propane by Superior Propane's purchases of ICG Propane (1998) and Trevita (2014). Spoiler alert: The Superior Propane decision increased costs of propane by about 8%; none of the supposed "efficiencies" were passed on to Canadians. We also weren't able to do a market study, or review the merger, to see if Superior Propane actually gained the efficiencies they predicted they would achieve.

I also share two arguments from Jim Stanford's "Economics for Everyone" - that the discipline of economics is:

a soft science, like history or sociology, more than it is a hard science like physics or chemistry.
always political; it is not a neutral discipline disconnected from our values as a community.

I argue this does not line up with the values we have as Canadians, and needs to be removed from our Competition Act when we complete the review of the Act.

How do we do this?

When the review of our Competition Act starts this fall, we must make our voices heard through the submission process, and to our MPs and Senators.
We must apply Stanford's thoughts on the discipline of economics to our daily lives. Know that economists are making best-guesses - they are not able to predict the future with 100% accuracy. When they make specific claims, we need to question their assumptions, and question who will benefit from their plans.
Register for the launch event of the Canadian Anti-Monopoly Project

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Deadweight loss

Simplified example

My cake shop sells 10 cakes at $10. I raise my price to $15/cake and I only sell 8 cakes. The deadweight loss is the value of the 2 cakes I didn't sell at $15 - so $30.

How this example relates to the efficiency defense in a merger

My cake shop sells 10 cakes/day at $10, and can make 20 cakes/day. The only other cake shop in town sells 10 cakes/day at $10 too. So I buy the other cake shop. I then close the other shop and lay off employees to become more "efficient" - this saves $75/day. Finally I raise my price to $15/cake, but I only sell 16 cakes/day now.

The deadweight loss is $60 (4 cakes @ $15), but the efficiencies gained are $75. Even though this is anti-competitive, it's deemed to be beneficial for the economy, so the merger is approved.

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Links from the episode:

What is Monopolies Killed My Hometown?

Do you wonder why small towns, small businesses and people seem to be falling behind and you don’t know why? Feeling helpless about whether any of us can do anything to halt the decline of the places we love? Well, we know a secret. Our society fought the same battles about 100 years ago, and small towns won.

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