Monopoly, Abuse of Dominance, and Unilateral Conduct

Week 5

Find these slides online: https://webslides.baxterlab.ca/slides/competition2025-26/05/
Category: Competition 2025-26

Agenda

Paper check-in
Course recap
Intro to single-firm conduct
Exclusionary conduct
Predatory pricing

Check-in

Name one challenge you need to overcome to successfully complete your paper in April.

Think about: project planning and scope; research question/thesis; research sources; writing and editing process

Quick recap:

Collusion / cartels
Merger review
Single-firm conduct / monopolistic practices

Source: Andrew Nixon and Keldon Bester, From Plow to Pantry, Monopoly in the Canadian Food System

What are we worried a monopolist might do with their market power?

Nutrien holds 60% of the North American potash market
BASF (60%) and Bayer-Monsanto (40%) form an effective duopoly in the market for canola seeds
John Deere controls 50% of the market for large farming equipment; CNH Industrial, 35%
Just two companies (Cargill & JBS) make up nearly 100% of the beef slaughterhouses; hog processing is dominated by a single firm at 70%
Five firms control 75% of the retail grocery market

Abuse of Dominance

Competition Act, s 79

79 (1) On application by the Commissioner or a person granted leave … if the Tribunal finds that one or more persons substantially or completely control a class or species of business throughout Canada or any area of Canada, it may make an order prohibiting the person or persons from engaging in a practice or conduct if it finds that the person or persons have engaged in or are engaging in

(a) a practice of anti-competitive acts; or

(b) conduct (i) that had, is having or is likely to have the effect of preventing or lessening competition substantially in a market in which the person or persons have a plausible competitive interest, and (ii) the effect is not a result of superior competitive performance.

Competition Act, s 79 (repealed)

79 (1) If, on application by the Commissioner or a person granted leave … the Tribunal finds that

(a) one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business,

(b) that person or those persons have engaged in or are engaging in a practice of anti-competitive acts, and

(c) the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market,

the Tribunal may make an order prohibiting all or any of those persons from engaging in that practice.

Competition Act, s 78

78(1) For the purposes of section 79, anti-competitive act means any act intended to have a predatory, exclusionary or disciplinary negative effect on a competitor, or to have an adverse effect on competition, and includes any of the following acts: […]

(h) requiring or inducing a supplier to sell only or primarily to certain customers, or to refrain from selling to a competitor, with the object of preventing a competitor’s entry into, or expansion in, a market;

(i) selling articles at a price lower than the acquisition cost for the purpose of disciplining or eliminating a competitor;

Other single-firm conduct:

75(1) refusal to deal
76(1) resale price maintenance
77(1) exclusive dealing, tied selling, and market restriction
79(1) price discrimination

s 75 - historically this provision captured conduct in which a firm was unable to obtain a supply of goods or services necessary for their business on usual trade terms; recently amended to include new “right to repair” which aims to ensure that end users of products have the freedom to repair those items (including access to spare parts, software and technical support);

E.g. is John Deere

s 76 - Price maintenance may occur when a supplier prevents a customer from selling a product below a minimum price.

s 77 - suite of practices by suppliers that impose non-price constraints on customers (contractual terms that require customers only to deal with a single supplier or that tie the purchase of two products together); also includes geographic restrictions imposed on buyers

s 79 (price discrimination) - dividing customers into different classes and charging those difference prices; “individualized” pricing increasingly an issue (e.g. in grocery retail) = attempt to capture more of the consumer surplus by charging them exactly what they are willing to pay

Three Views on Monopoly

Schumpeter (“Dynamic” Competition)
Trebilcock (Chicago School/Neoclassicist)
Khan (Structuralist/Neo-Brandeisian)

Schumpeter, D&B Companies of Canada Ltd

Nielsen purchases “scanner data” from all major grocery retailers through a series of rolling 5-year exclusive contracts (“exclusives”) in order to produce market reports (which it then sells to manufacturers). In structuring these contracts as exclusives, Nielsen effectively excludes its main competitor (US firm IRI) from the market for retail scanner data.

Should such behaviour be allowed? How might Schumpeter justify the use of these exclusives?

Context: scanner data is an “emerging technology”, Nielsen claims it is worried about being locked out of the market if IRI gains the jump on exclusive contracts.

“In the view of the Tribunal, retaining or obtaining a dominant position in order to defend against another firm potentially becoming dominant is not an acceptable business justification.”

Key claim by Nielsen is that the structure of competition here is “competition for the market”, rather than “competition within the market”

Idea is that each time exclusive contract comes up for renewal, IRI can bid on it
Tribunal is skeptical of this argument given that there is little evidence of IRI actually trying to enter (Nielsen argues that the case itself has influenced IRI’s behaviour and that they are waiting in the wings for the Tribunal to break up Neilsen’s market dominance)

NB: Key to Schumpeter’s argument for monopoly is linked to innovation. Innovation both enables monopoly power (for a time) and provides the justification for monopoly (where firms claim to need protection in order to establish themselves in a new market)

BUT tribunal finds that there is little evidence that Nielsen actually innovated as a result of its exclusive contracts

Schumpeter on Economic Change

“But economists who, ex visu of a point of time, look for example at the behavior of an oligopolist industry—an industry which consists of a few big firms—and observe the well-known moves and countermoves within it that seem to aim at nothing but high prices and restrictions of output are making precisely that hypothesis [of a static economy]. They accept the data of the momentary situation as if there were no past or future to it and think that they have understood what there is to understand if they interpret the behavior of those firms by means of the principle of maximizing profits with reference to those data. The usual theorist’s paper and the usual government commission’s report practically never try to see that behavior, on the one hand, as a result of a piece of past history and, on the other hand, as an attempt to deal with a situation that is sure to change presently—as an attempt by those firms to keep on their feet, on ground that is slipping away from under them.” (Schumpeter, Ch 7)

What really “counts” in Schumpeter’s view is not price competition, or even competition on quality or other characteristics, but “competition from the new commodity, the new technology, the new source of supply, the new type of organization”.

He is urging us to ignore the kinds of policy that focus on “more small retailers of the same type” to create competition within a given market and to pay attention to NEW forms of economic activity (department store, chain store, )

Essential point is that capitalism is an evolutionary process.

The “fundamental impulse” of this process of change is from new consumption goods, production and transportation processes, new markets, and new forms of industrial organization.

The process of change is Schumpeter’s “perennial gale of creative destruction”

Is Schumpeter’s approach more compelling in Big Tech?

What do we want and expect competition to look like in today’s digital sectors? Does competition come from firms competing on similar products, or from “disruptive innovators” displacing or cannibalizing existing platforms?

Predatory pricing, Hoffmann La-Roche

La-Roche developed and sold Valium exclusively under its original patent for the drug. When the federal and provincial governments introduced measures (compulsory licenses, broader availability of generics) to cut drug prices, La-Roche offered Valium for free to hospitals, for a year, at a cost in foregone profits of about $2M.

Should such behaviour be allowed? How might the analysis of Trebilcock and Khan differ on this question?

CA s 78(1)(i) selling articles at a price lower than the acquisition cost for the purpose of disciplining or eliminating a competitor;

Neoclassical

Long purse theory: if a firm has ample capital, in can undercut its competitors to drive them out of the market, at which point it raises prices above competitive levels to recoup costs.

NB the structure of the neo-classical critique = developing reasons why a hypothetical, rational, profit-maximizing firm would NOT engage in predation:

it would be more rational to merge than to predate, because predator not only loses profit during the period of low prices, but also bears the burden of increased production at the lower prices
assumes that consumers will act against their own self interest (by contributing to monopoly conditions over the long run)
for predation to be successful, exit barriers must be low; but if exit barriers are low, then entry barriers are also probably low, meaning that it will be difficult to prevent new entrants in the future

Reputational theory: predation may serve as a “lesson” to future would-be entrants and therefore – even if not rationale on the long-purse theory alone – could still benefit the predating firm in the long-run

Structure

“Antitrust doctrine has evolved to reflect this redefinition. The recoupment requirement in predatory pricing, for example, reflects the idea that competi- tion is harmed only if the predator can ultimately charge consumers su- pracompetitive prices.’ This logic is agnostic about process and structure; it measures the health of competition primarily through effects on price and out- put.”

“In practice, adopting this approach would involve assessing a range of fac- tors that give insight into the neutrality of the competitive process and the openness of the market. These factors include: (1) entry barriers, (2) conflicts of interest, (3) the emergence of gatekeepers or bottlenecks, (4) the use of and control over data, and (5) the dynamics of bargaining power. An approach that took these factors seriously would involve an assessment of how a market is structured and whether a single firm had acquired sufficient power to distort competitive outcomes. Key questions involving these factors would be: What lines of business is a firm involved in and how do these lines of business interact? Does the structure of the market create or reflect dependencies? Has a dominant player emerged as a gatekeeper so as to risk distorting competition?”

What factors might matter in the case of Valium?

Drug market is defined by patent rights = state-sponsored monopoly for a limited period (e.g. 20 years) = reward to investment and innovation (Schumpeter?)
Hospitals act as “gatekeepers” to some extent, because physicians tend to prescribe in their private practice whatever brand of drugs they prescribe in hospital
But entry barriers are also low in some ways: products are largely homogenous with little to differentiate them (why generics are such a threat to La Roche)
Are there other lines of business La Roche is involved in (e.g. other drugs) that allow them to influence competitive dynamics around Valium?

Possible legal rules for predatory pricing

Per se legal
Per se illegal
Presumptively illegal

Per se legal: PP basically isn’t a problem, so pricing below cost should generally be allowed (even if it lets a few PP through)

Basic argument is that low prices are the whole point of competition policy and don’t want to deter this through false positives
A modified rule would be to disallow competitors from bringing complaints (let consumers do it) … BUT, will consumers have the incentive to do this (at least in the short run)?

Per se illegal: to sell below average variable cost.

Are there legitimate reasons to price below cost? (e.g. perishable inventory; promoting new products; linked products such as razors and razor blades)

Presumption of illegality when price is below long-term marginal cost intended to eliminate competition

focus on long-term rather than short-term costs
rebuttable presumption; element of intent

Two stage:

(1) assess whether market conditions suitable for PP to exist
(2) price-cost test
seems to get closer to Khan’s “structural analysis”

Hoffman La-Roche

“Just as in self-defence from physical attacks a person can use only reasonable force, so too, in defending one’s market, a person must use reasonable methods. If someone slaps you, you cannot shoot him. Similarly, if your competitor cuts prices you may decrease yours too, but you cannot reduce them to zero for six months and expect a court to find that your intention is other than to eliminate competitors or substantially lessen competition.” (para 161)

Amazon’s Antitrust Paradox

Amazon prices best-selling e-books and its Kinddle e-reader at below cost. Should this conduct be sanctioned/prohibited as predatory pricing?

Paper-in-Progress Presentations (Mar 12 - Apr 2)

10% of your final grade
15 minutes to present; 5 minutes for questions
Carefully consider use of slide deck or other visuals

Key Tips for an Effective Presentation

Start with a brief outline (“In this presentation I am going to do three things…”)
Clearly identify your research question and state your (preliminary answer) up front
Don’t try to do too much: 15 minutes goes by quickly
It is okay to flag and discuss outstanding questions, concerns, gaps and unknowns (“I need some help to think through…”)

Essential point is that capitalism is an evolutionary process.

The “fundamental impulse” of this process of change is from new consumption goods, production and transportation processes, new markets, and new forms of industrial organization.

The process of change is Schumpeter’s “perennial gale of creative destruction”

“But economists who, ex visu of a point of time, look for example at the behavior of an oligopolist industry—an industry which consists of a few big firms—and observe the well-known moves and countermoves within it that seem to aim at nothing but high prices and restrictions of output are making precisely that hypothesis. They accept the data of the momentary situation as if there were no past or future to it and think that they have understood what there is to understand if they interpret the behavior of those firms by means of the principle of maximizing profits with reference to those data. The usual theorist’s paper and the usual government commission’s report practically never try to see that behavior, on the one hand, as a result of a piece of past history and, on the other hand, as an attempt to deal with a situation that is sure to change presently—as an attempt by those firms to keep on their feet, on ground that is slipping away from under them.”

David Teece: “innovation drives competition as assuredly as competition drives innovation.” (Teece, “Dynamic Competition, Organizational Capabilities, & M&A: A Short Synopsis.”) Often, what seem to be monopolistic practices (i.e., practices that seem to restrict output at the expense of consumers) help finance new investment.

EXAMPLES of dynamic competition (from https://itif.org/publications/2025/10/14/rethinking-antitrust-the-case-for-dynamic-competition-policy/):

Amazon spent significant resources to develop the Kindle e-reader, even though its core business at the time revolved around selling books.17 A significant quote from a former Amazon executive was that it is “better to cannibalize yourself than have someone else do it.”
Kodak, once thought of as a monopolist, is an obsolete company that refused to invest in innovating because it was afraid of cannibalizing its own profitable lines of business.
Firms such as Apple, Samsung, and Google continually invest in developing and launching improved devices, such as smartphones, for fear that a rival will take advantage of continuous improvements in technologies to release devices that will make them obsolete.
Google incorporates AI into its search service, given the propensity of many adopters to prefer AI tools for search services rather than traditional search engines.
Nvidia’s invests over the course of decades to transition from a computer graphics chip company to a supplier of advance processors to fuel the current wave of AI.

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