Agreements Among Competitors

Week 3

Find these slides online: https://webslides.baxterlab.ca/slides/competition2025-26/03/
Category: Competition 2025-26

Agenda

Oligopoly and collusion
What is an “agreement”?
Civil vs criminal enforcement
Green growth and beneficial coordination/cooperation
Major paper proposals

Oligopoly and collusion

What’s the difference between a group of grocers who make an agreement to fix the price of bread and a group of lawyers who create a law firm to set and publish a fee schedule for their services?

Cartels are bad because they form agreements around price, output or other market factors (like geography) in order to set prices above the competitive price - resulting in a deadweight loss to society (i.e. they act like a monopoly in exercising market power).

In the absence of such collusive agreements, the assumption is that firms would compete vigorously to avoid this deadweight loss.

But not all agreements between potential competitors necessarily lead to such loss in total surplus. In general, we tend to think that law firms lead to efficiencies by creating opportunities for mentorship of junior lawyers, sharing expertise and support staff, sharing risk, etc. These efficiencies likely offset any welfare loss from setting fee schedules - and we’re less concerned that a given law firm will be able to control output where there are lots of other competing firms in the field.

“Hard core” cartels presumably offer none of these benefits and all of the downsides of monopolistic pricing.

Four firms dominate a market. Monthly pricing data show that the firms’ pricing decisions are correlated with one another (i.e. they move up/down together).

Does this indicate a problem that competition law should address?

Oligopoly

Market in which a small number of firms are expected to take into account the pricing behaviour of their rivals as they compete to maximize profits.

Competition policy has turned to game theory to “model” oligopolistic competition and collusive behaviour.

Key idea from the prisoners dilemma: tells us what we expect to happen when parties act strategically in response to one anothers’ decisions when they can’t communicate.

Setup: each prisoner is put into a separate room and told that they can either confess or not. Each faces one of four possibilities, depending on what the other does.

A and B don’t confess (stay silent): both get 1 year in prison
A stays silent and B confesses: A gets 20 years, B goes free
A confesses and B stays silen: A goes free, B gets 20 years
A and B both confess: both get 10 years

Key insights:

Best result from A’s perspective is to confess (defect) when B stays silent, i.e. rat on B (symmetric for B)
Best collective result is for both the stay silent/cooperate (they each only get a year)
Inevitable result of the game (equilibrium) is that both confess/defect (i.e. the only logic strategy )

Explain in your own words how the PD game can be used to model oligopolistic competition and cartel behaviour. What insights does it yield?

“Agreements”

Competition Act, RSC , 1985, c. C-34, s 45(1)

45 (1) Every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges: (a) to fix, maintain, increase or control the price for the supply of the product;; (b) to allocate sales, territories, customers or markets for the production or supply of the product; or; (c) to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product.

When is there an “agreement”?

There are only three sellers in a given industry. One day, one of the firms sends the following email to its two competitors: “In the interest of fair competition, and for the sake of market transparency, we hereby inform you that the Board of our company has decided that from the next quarter our sales price will be 5% higher.”

Do you think competition law should allow or forbid sending such e-mails. Why?

Atlantic Sugar raises the key question of how to draw the line between “explicit collusion” (prohibited) and “conscious parallelism” (expected in oligopoly).

The Competition Act says there must be an “agreement”, but what does this mean in this context? Can an agreement be “tacit” as well as “explicit”?

The three firms producing sugar have their respective market shares set by gov during WWII. But after market regulation ends, firms continue - with a few hiccups - to retain almost exactly their respective historical market shares.

On the facts, Redpath seemed to be consciously trying to telegraph its desire to sustain this historical market share. But were they doing anything more than trying to strategically anticipate the behaviour of their competitors? Isn’t this just good business strategy?

No direct evidence that the firms agreed to collude.

But two activities seem relevant: (1) posting list prices in Redpath lobby; (2) creating a marketing policy to maintain historical market share (though this policy was never publicized or communicated to rivals)

Was there an agreement?

SCC approaches question in essentially contractual terms = offer + acceptance - most importantly, whether offer was ever “communicated” to competitors. While posting list prices certainly communicated them, the marketing policy motivating the collusive behaviour was never communicated = therefore, no “agreement” according to the court.
Competition Bureau takes a different approach under revised section 45: conscious parallelism on its own is insufficient, but “… parallel conduct coupled with facilitating practices, such as sharing competitively sensitive information or activities that assist competitors in monitoring one another’s prices, may be sufficient to prove that an agreement was concluded between the parties.” (16)
note that s. 45(3) allows for a court to infer an agreement “from circumstantial evidence, with or without direct evidence of communication between or among the alleged parties to it”

Competition Act, RSC , 1985, c. C-34, s 45(3)

In a prosecution under subsection (1) or (1.1), the court may infer the existence of a conspiracy, agreement or arrangement from circumstantial evidence, with or without direct evidence of communication between or among the alleged parties to it, but, for greater certainty, the conspiracy, agreement or arrangement must be proved beyond a reasonable doubt.

What other factors (circumstantial evidence) might the Bureau draw on to prove an “agreement”? Does game theory help us here?

Algorithmic Pricing

Worries?

Concerns with Algorithmic Pricing

algorithms that monitor competitors’ prices
algorithms that recommend or automatically set a price based on competitors’ prices
algorithms that tailor prices to specific individuals (personalized pricing)

Concerns:

alogorithms that make it easier to track prices and detect pricing deviations make cartels easier to monitor and therefore more stable (e.g. coordinating prices among online retailers on Amazon;
algorithms can coordinate independent firms’ behvaiour by commending specific prices based on big datasets: 2024-25 Bureau investigation into RealPage and Yardi software that allow independent landlords to track and collude around rental prices. Seems that many landlords got scared away from using these platforms after investigation launched. Bureau concluded that use of software wasn’t widespread enough and so did not support anti-competitive collaboration but remained concerned about us of these software tools. Big part of worry is that software uses non-public info from competitors and so gets into “facilitating practices” to support tacit collusion (e.g. lease terms, rents, vacancy data, etc)
catalyst for hub-and-spoke cartels (e.g. Uber) = surge pricing
the future: self-learning algorithms/AI may actually “decide” to collude without competitors sharing any information

Civil vs criminal enforcement

Competition Act, RSC , 1985, c. C-34, s 45(1)

45 (1) Every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges: (a) to fix, maintain, increase or control the price for the supply of the product;; (b) to allocate sales, territories, customers or markets for the production or supply of the product; or; (c) to fix, maintain, control, prevent, lessen or eliminate the production or supply of the product.

Beginning with first anti-combines legislation in 1889, Canada had a criminal conspiracy provision that addressed “every person who combines, conspires, agrees or arranges with any other person … to unduly lessen or prevent competition.”

Interpreted in Atlantic Sugar as (virtual) “elimination of competition” rather than a lessening of competition = very difficult to make out a case

Remained more or less the same until 2009 amendments to the Competition Act, which split the offence into current criminal provision (section 45) and a new “civil track” under section 90.1

Section 45 offences – sometimes called “naked restraints” – are per se unlawful, meaning that they do not required proof of anti-competitive EFFECTS (as was required under the “unduly” standard in the pre-2009 legislation–see Atlantic Sugar).

Competition Act, RSC , 1985, c. C-34, s 90.1

90.1 (1) If, on application by the Commissioner, the Tribunal finds that an agreement or arrangement — whether existing or proposed — between persons two or more of whom are competitors prevents or lessens, or is likely to prevent or lessen, competition substantially in a market, the Tribunal may make an order […]

“Per se” vs “rule of reason” analysis.

ISSUE: is the blanket licence “price fixing” per se, or is it complicated and therefore needs to be assessed under a “rule of reason”? Why do we have these “per se” and “rule of reason categories”?

USSC in BMI says that “per se” standard is not the same as “literal” price fixing (as interpreted by the Court of Appeal). Practice might literally fix price without falling into one of the “per se” categories

These categories are really about precedent: well-recognized class of practices that can serve as short-hand for adjudication

Why does the USSC in BMI say this behaviour should be assessed under a rule of reason standard?

blanket licences don’t have as their sole PURPOSE to limit competition
blanket licences as a “new” kind of PRODUCT different than individual works
emphasis on benefits in terms of minimizing transactions costs, ease of monitoring compliance with copyright (i.e. benefits)

BUT: court also asks whether the practice of blanket licences “threatens the central nervous system of the economy”

isn’t this just the same as applying an unduly standard? should we ask about effects in deciding between per se and rule-of-reason?

ASK: who gains from these benefits? Artists? CBS? Both?

Competition Law & Sustainable Governance

What role fo competition law?

Greenwashing provisions
Advanced certificate for sustainability agreements
Amendments to purpose clause?

Sustainability Agreements

Comparative options:

Proposed section 45 defence
TFEU Article 101
Competition Act, ss 124.3 - 124.6 (advance certificates)

Competition Act, RSC , 1985, c. C-34

124.3 (1) If the Commissioner is satisfied by a party or parties that propose to enter into an agreement or arrangement that it is for the purpose of protecting the environment and that it is not likely to prevent or lessen competition substantially in a market, they may issue a certificate that they are so satisfied.

Campbell/Stirling-Moffet Proposal

Defence

45(4.1) No person shall be convicted of an offence under subsection (1) in respect of a conspiracy, agreement or arrangement that would otherwise contravene that subsection if that person establishes on a balance of probabilities that it is directly related to the objective of environmental protection or sustainability.

TFEU Article 101

The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

any agreement or category of agreements between undertakings,
any decision or category of decisions by associations of undertakings,
any concerted practice or category of concerted practices,

which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

Research paper proposal (10%)

(1) provisional title, (2) abstract (200 words), (3) preliminary table of contents and (4) provisional bibliography by 12PM on Monday, February 2, 2026 via Brightspace.

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